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Prime office rents see marginal growth in 2Q2023, but occupancy rates stay resilient

/ EdgeProp Singapore |

June 28, 2023 1:30 PM SGT

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SINGAPORE (EDGEPROP) - Rents for prime offices in the CBD area saw marginal growth in 2Q2023, based on properties tracked by consultants. In a June 26 press release, CBRE notes that effective gross rents for Grade A offices in the core CBD area registered 0.4% growth q-o-q to reach $11.80 psf per month. The firm adds that vacancy rates for the segment remained low at 4%, underpinned by stable net absorption and no new supply.

The growth in 2Q2023 brings rental increase for Grade A core CBD offices to 0.9% for 1H2023. David McKellar, CBRE co-head of office services in Singapore, says the overall office market still sees healthy demand, contributed by the maritime industry, private wealth and asset management companies, law firms, professional services, and government agencies. The quarter also saw renewed growth in leasing demand by flexible workspace providers, who have seen increased occupancy rates in their centres.

In its 2Q2023 office sector report, Knight Frank Research found that rents for prime grade offices it tracks in the Raffles Place and Marina Bay precinct rose 1.2% q-o-q to average at $10.96 psf per month. It adds that this brought rental growth to 2.5% in the first half of 2023 amid escalating geopolitical tensions, inflationary pressures and prevailing economic gloom.

Knight Frank says occupancy levels in Raffles Place and Marina Bay remained healthy, coming in at 95.8% and 94.4%, respectively, in 2Q2023, as businesses continued to seek quality spaces in the CBD.

CBRE notes that sentiment remains cautious amid the current high-interest rate environment and slackening economic growth projections. It adds that shadow office space in the market remains “quite high” and could potentially increase in the second half of the year. CBRE’s head of research for Singapore and Southeast Asia, Tricia Song, says that occupiers in technology, cryptocurrency and consumer banking may consider giving up office space in light of challenging business conditions.

CBRE expects Grade A CBD office rents to remain relatively flat for the rest of the year before recovering in 2024. “With a strong trend of flight to quality, amid a shrinking pool of quality offices in the CBD, Core CBD (Grade A) rents are primed for long-term growth,” adds Song.

Knight Frank is taking a more optimistic shorter-term view, noting that Singapore’s labour market remains tight, with a re-employment rate of 71.7% in 1Q2023, higher than the pre-pandemic level of 65.9%, while overall unemployment stayed low at 1.8%.

With tight inventory in the CBD and occupancy levels supported by flight-to-safety and flight-to-quality trends, Knight Frank foresees potentially higher rents than previously forecasted. It projects prime office rents to grow between 3% and 5% this year, an improvement from the estimated 3% growth projection made at the end of 2022.

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