Grade-A office rents continue steady climb in 3Q2022, despite recession concerns

/ EdgeProp Singapore |
October 20, 2022 1:41 PM SGT
Based on Grade-A offices in the CBD tracked by JLL, rents rose 2.9% q-o-q in 3Q2022 to average at $11.06 psf per month, marking a new 14-year high (Picture: Albert Chua/The Edge Singapore)
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SINGAPORE (EDGEPROP) - Singapore Grade-A office rents have continued their upward trajectory during the third quarter of the year despite looming recession concerns. “The office leasing market has withstood the pressure of external economic headwinds better than expected,” notes Tay Huey Ying, head of research and consultancy for JLL Singapore.
Based on Grade-A offices in the CBD tracked by JLL, rents rose 2.9% q-o-q in 3Q2022 to average at $11.06 psf per month (psf pm), surpassing the pre-pandemic peak of $10.81 psf pm logged in 4Q2019 and marking a new 14- year high.
According to consultants, the rise in rents can be attributed to strong demand supported by the ongoing flight to quality by businesses, as well as tight supply. Cushman & Wakefield notes that CBD Grade-A net demand in 3Q2022 reached 580,000 sq ft — a quarterly high since 4Q2019. It also exceeded the 112,000 sq ft of new net supply stemming from the redevelopment of Hub Synergy Point along Anson Road that was completed during the quarter.
To that end, the firm documented a 1.8% q-o-q increase in CBD Grade-A office rents to $10.35 psf pm, based on the basket of offices it tracks.
Colliers — which reported a 1.8% q-o-q increase in rents to $11.30 psf pm for the premium and Grade-A offices it monitors in the core CBD area — highlights that higher service charges by landlords are also contributing to the higher rents.
Service charges typically cover landlord costs and may include items such as management fees, maintenance of common areas, security service fees and building repair costs. Colliers estimates service charges in some buildings have increased between 10% and 30% during the year.
IOI Central Boulevard Towers - EDGEPROP SINGAPORE
Key office leases that were inked in 3Q2022 included Amazon taking up 369,000 sq ft at IOI Central Boulevard Towers (Picture: Samuel Isaac Chua/The Edge Singapore)

Demand drivers

According to CBRE, demand for office space during the quarter was bolstered through expansion in the CBD by tech firms, flexible workspace operators and non-banking financial companies. Core CBD Grade-A offices saw vacancy rates contract from 4.4% in 2Q2022 to 3.1% in 3Q2022, based on CBRE’s data.
Key leases that were inked in 3Q2022 included Amazon taking up 369,000 sq ft at IOI Central Boulevard Towers, law firms Stephenson Harwood and Gibson Dunn taking up 17,000 sq ft at Marina Bay Financial Centre Tower 1 and 15,000 sq ft at One Raffles Quay North Tower respectively, and VP Bank signing for 11,000 sq ft at Guoco Midtown.
Other notable developments in the office landscape include ByteDance, the parent company of TikTok, reportedly further expanding its footprint in the CBD, and co-working giant WeWork opening its 220,000 sq ft office at 21 Collyer Quay in early September.
The boost in demand also comes on the back of Asia Pacific firms relocating their headquarters to Singapore or opening new offices in the city-state, says Knight Frank Singapore. A growing number of MNCs, start-ups, private equity firms and family offices are setting up in Singapore due to its established infrastructure and political stability. For example, last month, private equity firm TR Capital announced the opening of an office at CapitaGreen, with founder and CEO Paul Robine relocating from Hong Kong to be based in Singapore.
In light of this steady demand, upcoming new Grade-A office developments in the CBD have witnessed a healthy pre-commitment rate. According to Cushman & Wakefield, Guoco Midtown’s 773,441 sq ft office tower has attained a pre-commitment rate of about 60%, including advanced negotiations as of end-August, while the 1.49 million sq ft IOI Central Boulevard Towers, scheduled for completion in 2023, is about one-third pre-leased.

Potential headwinds

Given the upward trajectory of office market performance throughout the last three quarters, CBD Grade-A office rents are expected to see strong full-year growth for 2022, with most consultants forecasting growth rates of between 5% and 10%. CBRE also highlights that office space take-up will likely double in 2022 from the roughly 320,000 sq ft logged for 2021.
However, global economic headwinds could potentially dampen demand and rental growth in 2023. JLL, which is forecasting 10% rental growth for CBD Grade-A offices in 2022, sees this slowing to 5% the following year. “This takes into consideration the expected intense competition for tenants to backfill space vacated by occupiers upgrading to new projects, such as Guoco Midtown scheduled for completion by the end of 2022 and IOI Central Boulevard Towers in 2023,” says Tay.
Co-working giant WeWork opened its 220,000 sq ft office at 21 Collyer Quay in early September (Picture: Samuel Isaac Chua/The Edge Singapore)
Similarly, Cushman & Wakefield, which is projecting a 5.5% to 6.5% rise in CBD Grade-A office rents this year, anticipates this to be reduced to between 2% and 4% in 2023. The firm also cautions that consolidation in the tech sector may impact the market. “Technology firms, a key office demand driver, have largely become more cautious on the back of tightening financing landscape,” notes Jeryl Teoh, senior director, commercial leasing, Singapore, at Cushman & Wakefield. (Find Singapore commercial properties with our commercial directory)
Nonetheless, despite the less rosy outlook, consultants agree that barring a sustained economic recession, rental rates will remain positive in 2023, backed by limited new supply beyond 2023 and resilient demand, owing to Singapore’s status as a global business and tech hub. “Singapore remains poised as a shelter for multinational firms to weather the coming economic challenges, barring further redundancies in certain technology segments,” observes Calvin Yeo, managing director, occupier strategy and solutions, at Knight Frank Singapore.
Check out the latest listings near IOI Central Boulevard Towers, One Raffles Quay

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