Back-to-office momentum boosts office rents up 1.6% q-o-q in 1Q2022

By Atiqah Mokhtar / EdgeProp Singapore | April 22, 2022 2:50 PM SGT
Office rents grew for a second consecutive quarter in 1Q2022 (Photo: Albert Chua/The Edge Singapore)
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SINGAPORE (EDGEPROP) - Office rents grew by 1.6% q-o-q in 1Q2022, marking a second consecutive quarter of growth following the 0.9% recorded in 4Q2021, according to data released by URA on April 22. The stronger performance is driven by the return-to-office momentum as Singapore continues on its path to reopening.
office market - EDGEPROP SINGAPORE
Source: URA
“With office rents having bottomed out in 2021, moderate rental increments can be expected to characterise the year 2022, as corporates shift from a wait-and-see stance to actively rationalising their space requirements,” remarks Leonard Tay, head of research at Knight Frank.
Median rents in Category 1 office space, which is located in the prime CBD area, rose 1.6% q-o-q in 1Q2022, driven by limited supply, according to Tricia Song, head of research, Southeast Asia, at CBRE. This has led to a spillover in demand to other submarkets, with Category 2 office space seeing an increase in median rents by 3.9% q-o-q, she adds.
median rentals - EDGEPROP SINGAPORE
1 Refers to office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area. 2 Refers to the remaining office space in Singapore which are not included in “Category 1”
Office rents tracked by CBRE Research further indicate a broad-based recovery, underpinned by declining vacancies across the market. Grade A Core CBD rents were up 1.4% from the preceding quarter to $10.95 psf per month (pm) in 1Q2022, whilst Grade B Islandwide rents also rose by some 1.4% q-o-q.
Islandwide, the office market saw a negative net absorption of 139,931 sq ft in 1Q2022, compared to 107,639 sq ft the previous quarter. Lam Chern Woon, head of research and consulting at Edmund Tie, attributes this to moderation in leasing demand likely tied to corporates holding back on their real estate needs amid the Omicron wave during the quarter.
Nonetheless, the islandwide office vacancy rate stood unchanged at 12.8% at the end of 1Q2022, due to a slight reduction in overall stock available.
Source: URA
Consultants are upbeat on the office market outlook for the rest of the year, supported by growing demand as Singapore transitions to an endemic state. “While hybrid working could keep the overall office demand footprint below pre-pandemic levels, leasing demand is expected to continue, driven by rapid expansion in demand from agile space, technology and non-bank financial sectors, and limited new supply,” remarks CBRE’s Song. CBRE is projecting CBD Grade A rents to grow by 6.9% y-o-y for the whole of 2022.
Catherine He, head of research for Colliers in Singapore, notes that while tech and finance firms continue to be strong drivers of office demand, more diversified players have also entered the mix, with consumer product companies and pharmaceutical firms taking up space in the CBD. “There are also new market entrants setting up shop in Singapore (notably Chinese tech firms), who are attracted to its efficient handling of the pandemic, political neutrality, and reputation as a gateway hub to Southeast Asia,” she adds.
Knight Frank’s Tay further adds that Singapore could potentially benefit from companies and professionals looking to relocate from Hong Kong given its geopolitical tensions and Covid-19 situation.
Separately, on the office sales front, Tay highlights that the office prices “turned around quite dramatically” in 1Q2022, reversing from a 1.8% q-o-q contraction in 4Q2021 to grow 4.4% in 1Q2022. Noting a growing demand for strata office space from private wealth firms, family offices, and SMEs looking to right-size, he anticipates existing strata-titled commercial buildings in the Central Area will become more popular given the recent restriction announced on strata subdivision in certain corridors of the CBD.

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