Prime office rents up 5.5% in 2022, exceeding earlier projections: Knight Frank

Prime-grade office rents in Raffles Place and Marina Bay grew by 1.7% q-o-q to $10.69 psf per month in 4Q2022 (Samuel Isaac Chua/The Edge Singapore)

SINGAPORE (EDGEPROP) - Prime-grade office rents in Raffles Place and Marina Bay grew by 1.7% q-o-q to $10.69 psf per month in 4Q2022, according to data compiled by Knight Frank. This brings the full-year growth in prime office rents to 5.5%, exceeding Knight Frank’s projection of 3% to 5% at the start of the year.

According to the consultancy, rents were underpinned by the tight supply of new office inventory, combined with steady demand for traditional and co-working office spaces. “The office sector has become a landlord’s market,” says Calvin Yeo, managing director, occupier strategy and solutions, at Knight Frank Singapore.

Occupancy levels in the Raffles Place and Marina Bay precinct stood at 95.5% as of end-2022, while overall occupancy in the CBD increased from 93.6% to 94.2% last quarter. Yeo attributes this to businesses seeking out quality office space that can support the full resumption of functions to pre-pandemic levels.

This comes as more employees work full-time from the office, with the proportion of employees working remotely anticipated to average between 10% and 15%, lower than the 20% projected earlier. “The long-term adoption of hybrid working might not be as pervasive and permanent in Singapore as initially perceived during the height of the pandemic,” observes Yeo. As such, the leasing market remains active, with office users on the lookout for better quality space.

Meanwhile, Knight Frank highlights that more flexibility and options are being provided by co-working spaces in the CBD. For example, Trehaus at Funan incorporates childcare and preschool services, while Japanese co-working hub One&Co at Twenty Anson supports Japanese companies expanding into Singapore. “Occupiers who are unsure whether to renew or relocate have the interim option of co-working space, especially smaller space users,” says Yeo.

Looking ahead, he expects slower rental growth in 2023 for prime-grade offices, underpinned by macroeconomic headwinds and volatility in the tech sector, which has seen employee layoffs. Nonetheless, Singapore’s status as a flight-to-safety destination will likely help bolster demand, with international firms setting up shop in the city-state or shifting business functions from other parts of Asia.

In addition, Yeo notes that despite the tech layoffs, employment levels continued to improve as non-tech companies, such as those in the banking and financial sectors, are absorbing the talent available to expand their tech platforms. An advance report by the Ministry of Manpower states that the resident unemployment rate among professionals, managers, executives and technicians declined from 3.4% in 2021 to 2.6% in 2022.

Given the steady level of demand, coupled with a tight supply of new office space, Yeo forecasts rents to increase by around 3% for the whole of 2023, barring any further substantial pre-termination or reduction of space from technology companies.

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