New Reporter
28-06-23, 11:32
Prime office rents in CBD under downward pressure amid pockets of weakness in Q2
Jun 26, 2023
SINGAPORE Grade-A office rents in the Central Business District (CBD) could come under downward pressure in the second half of 2023, as near-term demand will likely fall short of supply, a JLL report showed.
While prime rents flattened in the second quarter and mostly stayed where they were in Q1, “landlords of buildings with large pockets of shadow space were starting to cave to the pressure by lowering rents to boost occupancies in the second quarter of 2023”, said Tay Huey Ying, JLL’s head of research and consultancy, Singapore.
Tricia Song, CBRE’s head of research for South-east Asia, saw certain groups of office occupiers “continue to face challenging business conditions”. Some tenants, such as those in technology, cryptocurrency and consumer banking, may be contemplating cutting office space, “potentially contributing to more shadow space in the second half of the year”.
Shadow space refers to the excess space on an existing lease obligation that a tenant would like to give up by finding a replacement tenant for the landlord, rather than terminating the lease and incurring penalties. While not technically included as current vacant space, shadow space can point to future vacancy.
Although CBD supply is expected to remain tight, shadow space levels have begun to creep up, even as current vacancy hovers at around 4-4.5 per cent.
Savills Singapore estimates that about 2.1 per cent or 660,000 sq ft of its basket of Grade-A space in the Downtown Core consisted of shadow space in Q1. A separate Cushman & Wakefield report issued earlier this month reckoned that shadow space made for about 1 per cent of total office stock, and that about two-thirds of shadow space released in Q1 came from the tech sector.
JLL’s Tay expects prime Grade-A rents to “enter into a correction mode in the final six months of 2023, given that near-term demand will likely fall short of supply”. She noted that IOI Central Boulevard Towers will introduce over a million sq ft of additional office space to the CBD stock in the next few months.
“While approximately 50 per cent of this space has already been pre-committed or is currently undergoing advanced negotiations, there remains a substantial amount of over half a million sq ft of space waiting to be taken up,” she said.
Among JLL’s basket of office properties in Marina Bay, Raffles Place, Shenton Way/Tanjong Pagar and Marina Centre, rental rises flattened to just 0.2 per cent in Q2, to an average of S$11.33 per square foot (psf) per month from S$11.31 psf per month in Q1.
This was markedly slower than the 2 per cent to 3 per cent quarterly growth in prime rents seen in the first three quarters of 2022, after which rents eased to 1.2 per cent growth in Q4, and 1.1 per cent growth in the first quarter of 2023, JLL data indicated.
CBRE expects core CBD Grade-A rents to stay flat for the rest of the year, with sentiment cautious in a high-interest-rate environment and slackening economic growth and shadow space competing with new office supply coming through the pipeline.
In the longer term, CBD Grade-A rents are still primed for growth, CBRE said; JLL sees potential for a rebound in 2024 on brighter economic prospects.
Song pointed out that government plans for the Jurong Lake District (JLD) could release 70,000 sq m of new Grade-A office space in the next seven to eight years, and older-generation buildings “may face challenges from new buildings in JLD in the future”. “We therefore expect the rental divergence between the CBD Grade-A and Grade-B segments to widen.”
In the near term, demand is expected to be subdued in H2, JLL Singapore’s head of office leasing and advisory Andrew Tangye said. The number of new leasing enquiries, particularly from large-space users, has been noticeably scarce in 2023, he observed.
Still, the overall market continues to see healthy demand from the maritime industry, private wealth and asset management companies, law firms, professional services and government agencies, said David McKellar, CBRE co-head of office services. There was also renewed growth in leasing demand in Q2 from flexible workspace providers, which have had rising occupancy rates.
Major deals signed in the second quarter included that by Morgan Stanley, which has taken up 100,000 sq ft in five floors at IOI Central Boulevard Towers, and Publicis Groupe, which signed up for 55,000 sq ft in Guoco Midtown.
Knight Frank pointed to new business formation and flight-to-safety dynamics holding up Singapore office rents. According to Knight Frank data, prime-grade office rents in the Raffles Place/Marina Bay area were up 1.2 per cent, averaging S$10.96 psf per month in Q2.
Despite business contractions and worldwide lay offs, many international corporates have continued to relocate functions to Singapore, it said.
Statistics from the Accounting and Corporate Regulatory Authority (Acra), the number of business entities registered in Singapore grew from 570,992 to 579,221 in the first five months of 2023. The increase of 8,229 was higher than the 4,649 new entities registered over the same period in the previous year, Knight Frank noted.
Demand from tenants seeking green buildings should also increase for Grade-A buildings in the CBD, as they move from more economical Grade B or ungraded buildings, Savills noted.
With prime rents expected to increase in 2024, “the current higher availability of office shadow stock could be an opportune time to secure prime office spaces at more reasonable rents,” said Cushman & Wakefield.
https://www.businesstimes.com.sg/property/prime-office-rents-cbd-under-downward-pressure-amid-pockets-weakness-q2
Jun 26, 2023
SINGAPORE Grade-A office rents in the Central Business District (CBD) could come under downward pressure in the second half of 2023, as near-term demand will likely fall short of supply, a JLL report showed.
While prime rents flattened in the second quarter and mostly stayed where they were in Q1, “landlords of buildings with large pockets of shadow space were starting to cave to the pressure by lowering rents to boost occupancies in the second quarter of 2023”, said Tay Huey Ying, JLL’s head of research and consultancy, Singapore.
Tricia Song, CBRE’s head of research for South-east Asia, saw certain groups of office occupiers “continue to face challenging business conditions”. Some tenants, such as those in technology, cryptocurrency and consumer banking, may be contemplating cutting office space, “potentially contributing to more shadow space in the second half of the year”.
Shadow space refers to the excess space on an existing lease obligation that a tenant would like to give up by finding a replacement tenant for the landlord, rather than terminating the lease and incurring penalties. While not technically included as current vacant space, shadow space can point to future vacancy.
Although CBD supply is expected to remain tight, shadow space levels have begun to creep up, even as current vacancy hovers at around 4-4.5 per cent.
Savills Singapore estimates that about 2.1 per cent or 660,000 sq ft of its basket of Grade-A space in the Downtown Core consisted of shadow space in Q1. A separate Cushman & Wakefield report issued earlier this month reckoned that shadow space made for about 1 per cent of total office stock, and that about two-thirds of shadow space released in Q1 came from the tech sector.
JLL’s Tay expects prime Grade-A rents to “enter into a correction mode in the final six months of 2023, given that near-term demand will likely fall short of supply”. She noted that IOI Central Boulevard Towers will introduce over a million sq ft of additional office space to the CBD stock in the next few months.
“While approximately 50 per cent of this space has already been pre-committed or is currently undergoing advanced negotiations, there remains a substantial amount of over half a million sq ft of space waiting to be taken up,” she said.
Among JLL’s basket of office properties in Marina Bay, Raffles Place, Shenton Way/Tanjong Pagar and Marina Centre, rental rises flattened to just 0.2 per cent in Q2, to an average of S$11.33 per square foot (psf) per month from S$11.31 psf per month in Q1.
This was markedly slower than the 2 per cent to 3 per cent quarterly growth in prime rents seen in the first three quarters of 2022, after which rents eased to 1.2 per cent growth in Q4, and 1.1 per cent growth in the first quarter of 2023, JLL data indicated.
CBRE expects core CBD Grade-A rents to stay flat for the rest of the year, with sentiment cautious in a high-interest-rate environment and slackening economic growth and shadow space competing with new office supply coming through the pipeline.
In the longer term, CBD Grade-A rents are still primed for growth, CBRE said; JLL sees potential for a rebound in 2024 on brighter economic prospects.
Song pointed out that government plans for the Jurong Lake District (JLD) could release 70,000 sq m of new Grade-A office space in the next seven to eight years, and older-generation buildings “may face challenges from new buildings in JLD in the future”. “We therefore expect the rental divergence between the CBD Grade-A and Grade-B segments to widen.”
In the near term, demand is expected to be subdued in H2, JLL Singapore’s head of office leasing and advisory Andrew Tangye said. The number of new leasing enquiries, particularly from large-space users, has been noticeably scarce in 2023, he observed.
Still, the overall market continues to see healthy demand from the maritime industry, private wealth and asset management companies, law firms, professional services and government agencies, said David McKellar, CBRE co-head of office services. There was also renewed growth in leasing demand in Q2 from flexible workspace providers, which have had rising occupancy rates.
Major deals signed in the second quarter included that by Morgan Stanley, which has taken up 100,000 sq ft in five floors at IOI Central Boulevard Towers, and Publicis Groupe, which signed up for 55,000 sq ft in Guoco Midtown.
Knight Frank pointed to new business formation and flight-to-safety dynamics holding up Singapore office rents. According to Knight Frank data, prime-grade office rents in the Raffles Place/Marina Bay area were up 1.2 per cent, averaging S$10.96 psf per month in Q2.
Despite business contractions and worldwide lay offs, many international corporates have continued to relocate functions to Singapore, it said.
Statistics from the Accounting and Corporate Regulatory Authority (Acra), the number of business entities registered in Singapore grew from 570,992 to 579,221 in the first five months of 2023. The increase of 8,229 was higher than the 4,649 new entities registered over the same period in the previous year, Knight Frank noted.
Demand from tenants seeking green buildings should also increase for Grade-A buildings in the CBD, as they move from more economical Grade B or ungraded buildings, Savills noted.
With prime rents expected to increase in 2024, “the current higher availability of office shadow stock could be an opportune time to secure prime office spaces at more reasonable rents,” said Cushman & Wakefield.
https://www.businesstimes.com.sg/property/prime-office-rents-cbd-under-downward-pressure-amid-pockets-weakness-q2