Singapore office rents rise 2.4% in Q2, prices fall 5.1%: URA

Jul 23, 2022

GEOPOLITICAL and economic headwinds notwithstanding, analysts expect central business district (CBD) office rents to keep growing after those in Singapore’s central region rose at a faster clip in Q2 2022.

Figures from the Urban Redevelopment Authority (URA) released on Friday (Jul 22) showed that the rental index for offices grew for the third consecutive quarter, by 2.4 per cent quarter on quarter in Q2, from the 1.6 per cent rise in Q1.



For the remainder of 2022 and into 2023, Knight Frank’s head of research, Leonard Tay, expects office rents to hold firm despite a possible recession. This is due to Singapore’s open business environment with clear and transparent policies, and a “flight to safety” by private wealth, corporates and multinational companies affected by tensions in other parts of the world.

“Office occupancy levels and rents are also expected to be supported by the tight supply of good-quality spaces at globally competitive rates in Singapore,” says Tay, who is maintaining a forecast of 3 to 5 per cent growth in rents for the whole of 2022.

As at end June 2022, there was a total supply of about 868,000 square metres (sq m) in gross floor area of office space in the pipeline — about 4.1 per cent more than the 834,000 sq m of pipeline supply as at end March.

Islandwide, office space vacancy rate decreased by 0.8 percentage points quarter on quarter to 12 per cent at end June. This came as the amount of occupied office space increased by 24,000 sq m, reversing from a decrease of 13,000 sq m in Q1. Total office stock fell by 44,000 sq m in Q2 this year, compared with the decrease of 17,000 sq m in the previous quarter.

The swift and extensive relaxation of Covid-19 safe management measures fueled occupier confidence in Q2. Coupled with the total lifting of restrictions on working from the office from Apr 26, this has spurred more expansions and new set-ups and slowed workplace downsizing, said JLL’s head of research and consultancy, Tay Huey Ying.

At the same time, ageing office assets continue to be taken off the stock, as the redevelopment wave continues, she added, noting that this is the third consecutive quarter of shrinking islandwide office stock, resulting in a tightening of supply vis-à-vis demand.

Notwithstanding early signs that global economic headwinds are starting to have an impact on some occupiers’ real estate decisions, full-year growth for CBD Grade A gross effective rents could still double the 4.3 per cent clocked in 2021 since they have already risen by 5 per cent in H1 2022, she said.



Catherine He, head of research at Colliers, noted that recent news about technology firms laying off and slowing their hiring might also raise concerns. However, she expects multinational tech firms with healthy financials to continue growing their presence in Singapore as it is seen as a gateway to South-east Asia.

Besides the tight supply situation, increasing operational costs faced by landlords due to inflationary pressures will result in higher gross rents as service charges (which form part of gross rents) rise, He said, adding that she anticipates service charges could increase by up to 20 per cent.

“Hence, the upward rental growth trajectory is expected to remain well-supported,” she concluded. “With office rents in the Core CBD Premium and Grade A segment having grown by 3.1 per cent in H1 2022, Colliers expects full year 2022 rental growth for this segment to be around 5 to 7 per cent.”

Tricia Song, CBRE’s head of research for Singapore and South-east Asia, said that while landlords were emboldened to raise their rental expectations amid a tight supply environment, median rents by contract date in Category 1 — a proxy for prime CBD — office space dipped slightly by 1.6 per cent quarter on quarter. This could be attributed to some pre-commitment transactions where rentals could be levelled due to the larger sizes inked, she noted.

Looking forward, potential risks remain on the demand side, but the tapering supply pipeline bodes well for the market, said Song, adding that there could be vacancy risks, as sizeable chunks of secondary space would need to be backfilled towards the end of 2022.

Core CBD Grade A rents tracked by the firm have grown by 4.6 per cent year-to-date. “With a stable domestic economic outlook, alongside a back-to-office recovery and limited new supply pipeline, CBRE Research expects Core CBD Grade A office rents to grow 8.3 per cent for the full year, compared to 3.8 per cent for 2021,” said Song.

Meanwhile, prices of office space fell by 5.1 per cent in Q2, compared with the 4.4 per cent increase in the previous quarter.

Lam Chern Woon, Edmund Tie’s head of research and consulting, said the fall in office prices in contrast to rising rents reflects the expansion in office capitalisation rates that is driven by the current interest rate up cycle.

“Given the limited supply and sustained demand, central region office rents are likely to continue trending northwards, driven by high rental growth and occupancy rates, although the softening economic outlook could temper some business and corporate real estate plans,” said Lam.

https://www.businesstimes.com.sg/rea...es-fall-51-ura