SINGAPORE (EDGEPROP) - Limited supply and increasing back-to-office momentum have contributed to an upturn in the core CBD Grade A office market sentiment, says CBRE in a Sept 25 press release. The consultancy reports leasing activity has picked up in this segment, with CBRE’s data showing a positive net absorption of 0.11 million sq ft in 3Q2023, compared to 0.03 million sq ft in 1H2023.

In tandem with the higher leasing activity, CBRE’s data shows that gross effective rents for Grade A office buildings in the core CBD have increased by 0.4% q-o-q in 3Q2023 to reach $11.85 psf per month. Vacancy fell from 4% in 2Q2023 to 3.2% in 3Q2023. CBRE defines the core CBD area as Raffles Place, Marina Bay, Marina Centre and Shenton Way.

The higher activity in the market follows a reduction in shadow space resulting from the slowdown in the tech sector, says David McKeller, CBRE’s co-head of office services in Singapore. In 3Q2023, shadow space stood at 0.33 million sq ft, halving from the record high of 0.7 million sq ft in 1Q2023, CBRE research shows.

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“Occupiers in co-working and asset management have been among the various businesses that have taken up chunks of these shadow spaces, seizing the opportunities to move into fitted office spaces in the prime Marina Bay and Raffles Place areas,” Keller says. He adds that increased office usage has also contributed to demand, with more employees returning to the office.

Despite a cautious economic outlook and high interest rates, CBRE notes that the Grade A office market has outperformed expectations, with rents growing 1.3% since the start of the year. “The delayed completion of IOI Central Boulevard Towers to 1Q2024 should keep market vacancy low and maintain landlords’ confidence for the remainder of 2023,” says Tricia Song, CBRE head of research for Singapore and Southeast Asia.

CBRE estimates core CBD Grade A office rents could grow by 1.5% to 2% for the whole of 2023.