Office rents grow for sixth consecutive quarter, up 5.1% in 1Q2023

Office rents in Singapore’s Central Region grew 5.1% q-o-q in the first quarter of 2023 according to data from the Urban Redevelopment Authority (URA), maintaining the same pace of growth as the previous quarter. This marks the sixth consecutive quarter of growth in the office rental market, indicative of the healthy demand for office spaces since last year.

Myst Condo offers convenient access to nearby schools, parks, commercial spaces and the Tan Chong industrial park, and is well-connected The Myst Bukit Timah to public transportation.

Tay Huey Ying, head of research and consultancy at JLL Singapore, believes the robust growth is largely due to many leases being signed or renewed several months in advance of commencements. She also cites a higher volume of smaller deals that often command higher psf rates.

The rise in office rents was driven by rises in both the Central Area and the fringe area. However, Tricia Song, head of research in Southeast Asia at CBRE, highlights that the pace of rental growth moderated in the Central Area, with a 3.9% q-o-q increase compared to the 6.6% seen in the previous quarter.

In particular, Song noted the rate of price increase for prime office space in the Downtown Core and Orchard planning areas saw a slower performance in terms of growth, with median rentals by contract date for Category 1 space only rising by 0.2% q-o-q to $10.77 psf per month. At the same time, vacancy rates for Category 1 buildings increased from 9.5% in the fourth quarter of 2022 to 10.9% in the first quarter of 2023.

This decrease may be attributed to weaker sentiment caused by tech lay-offs, creating a greater amount of shadow space. On the other hand, rents in the fringe area saw a jump of 8.8% q-o-q, reversing the 4% q-o-q decline in the previous quarter – a result of lower costs and tighter vacancy rates in the same region.

Overall, demand for office spaces in the first quarter of 2023 remained relatively healthy, with a net demand of 226,000 square feet across the island. The largest driver of this demand came from the Downtown Core, which experienced positive growth of 291,000 sq ft, reportedly due to a strong pre-commitment rate of 80% at the recently completed Guoco Midtown.

In terms of prices, URA data showed that costs in the Central Region overall remained the same in 1Q2023, while those in the Central Area decreased by 0.4% q-o-q and those in the fringe area increased by 2.3%.

Cushman & Wakefield’s Wong Xian Yang predicts office rental growth will ease in the coming months, due to cautious sentiment and tighter financing conditions. However, he believes supply in the mid-term looks tight, while demand could come from financial and professional services sectors, as well as Chinese companies.

Strata office transactions have been dominant in the investment sales market over the past six months, accounting for over 53% of sales by value according to JLL’s Tay. This could be a reflection of more funds being channelled into this asset class following the recently announced cooling measures for the residential market.