Singapore office rents rebound in 2021, growing 1.9% y-o-y

SINGAPORE (EDGEPROP) - Office space rentals increased by 0.9% in 4Q2021, reversing from the 3.5% decrease in the previous quarter, according to data released by the URA on Jan 28.

For the whole of 2021, rentals of office space increased by 1.9%, compared with a decline of 8.5% in 2020.

Cushman & Wakefield’s head of research Wong Xiang Yan notes that the growth in 4Q2021 rental rates was propelled by a higher increase in Central Area rents (up 0.8% q-o-q) as compared to Fringe Area rents (up 0.3% q-o-q).

“The growth in rents is backed by a flight to quality where tenants are showing a growing appetite for good-quality offices alongside a robust global economic rebound. This is evidenced by Category 1 office median rentals growing 0.6% q-o-q in 4Q2021, the third consecutive quarterly increase. Notably, Category 2 office spaces grew 0.4% q-o-q in 4Q 2021 as well, suggesting a broad-based recovery in the office market,” Wong says.

Prices of office space decreased by 1.8% in 4Q2021, easing from the 2.4% decrease recorded in the previous quarter. For the whole of 2021, prices of office space decreased by 5.8%, compared with the decrease of 10.7% in 2020.

Lam Chern Woon, head of research & consulting at Edmund Tie, highlights that Category 1 office buildings saw an increase in occupancies by 0.4% in 4Q2021 after four consecutive quarters of decline.

He attributes this to occupiers taking advantage of the current climate to upgrade their spaces from a traditional model to a modern and efficient setup that encourages collaboration and networking.

“The occupancy rate for the remaining office spaces has also started to stabilise, holding steady in 4Q2021 after three quarters of decline. As a result, the overall office vacancy rate fell by 0.1% in 4Q2021, after a 0.3% increase in the previous quarter,” he adds.

Moving forward, as Singapore progresses along its endemic Covid-19 roadmap and as leasing sentiment and demand improve with the 50% return of the workforce into the office from the start of the year, Lam expects rental growth of around 3% to 5% for the prime segment.

Cushman & Wakefield’s Wong expects a continued uptrend for Central Region office rents. “We are projecting the CBD Grade-A office rents to grow by 4.6% y-o-y in 2022, coupled with tightening vacancy rates, against a backdrop of sustained demand and limited supply,” Wong says.

Knight Frank head of research Leonard Tay expects demand for strata office units to grow in 2022, given the lack of new strata office supply in the medium term together with some spillover investor interest from the private residential market as a result of the cooling measures announced last month.