Rents for premium and Grade A offices in the core CBD reached $11.40 psf per month (Picture: Albert Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - Core CBD premium and Grade A office rents continued their upward trajectory in 4Q2022 but at a slower pace, according to data compiled by Colliers. Offices tracked by the consultancy in this segment grew 0.9% q-o-q to reach $11.40 psf per month in 4Q2022, lower than the 2.7% growth reported by Colliers for 3Q2022.
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Nonetheless, this brings the full-year rental growth for premium and Grade A office rents in the core CBD to 5.9% for 2022 – the highest annual growth since 2019, according to Colliers. Rental growth was supported by newer, high-quality buildings in the Raffles Place/New Downtown submarkets, which saw rents rising 1.3% q-o-q.
Leasing demand rebounded in 4Q2022, bringing the total net absorption for core CBD premium and Grade A offices to over 500,000 sq ft for the whole of 2022. The vacancy rate for this segment tightened to 2.3%, underpinned by tight supply.
Colliers’ report also highlights that the fringe CBD Grade A office segment registered a 1.4% q-o-q rental growth in 4Q2022, underpinned by the addition of Guoco Midtown in the Beach Road/Bugis submarket. Meanwhile, average capital values for core CBD premium and Grade A offices grey by 1.7% q-o-q to $3,050 psf in 4Q2022.
Given the lack of supply of high-quality offices, Colliers believes the office market will likely remain a landlord’s market for the first half of the year, with most building owners expected to maintain their asking rents.
The slowdown in leasing demand from tech firms, which have been significantly impacted by a dimmer economic outlook, is expected to extend to other sectors, including the financial sector. As such, Colliers anticipates more shadow space emerging, thereby capping rental growth, though new entrants and tenants from other industries including business services are likely to help backfill this space.
Nonetheless, with leasing activity slowing, landlords might need to prioritise occupancy and offer more competitive incentives and rents. Bastiaan van Beijsterveldt, Colliers’ executive director and head of occupier services, Singapore, believes net absorption for core CBD premium and Grade A offices will reach 679,000 sq ft for the whole of 2023.
The lower leasing activity will underpin a moderation in rental growth for the year. “Following a 5.9% rental growth for 2022, we expect full-year 2023 rental growth for the core CBD premium and Grade A segment to ease to between 2% and 3% y-o-y,” says Catherine He, director and head of research at Colliers.