Singapore Grade A office rents increase 8.3% in 2022

The growth surpassed the 3.8% hike recorded in 2021.

On the back of firm return-to-office demand and healthy building occupancies, rents rose in tandem, particularly for the prime office segment. According to CBRE Research, gross effective rents for Core CBD (Grade A) grew for the seventh consecutive quarter to SGD11.70 psf/mth by the end of 2022 reflecting a full year growth of 8.3%, surpassing the rental growth of 3.8% in 2021. 

A strong second half, supported by the addition of Guoco Midtown, boosted islandwide net absorption to 1.15 mil sq. ft. for 2022. This was 3.6 times 2021’s demand of 0.32 mil sq. ft., and 17.9% higher than the 10-year average annual net absorption of 0.97 mil sq. ft. between 2013 and 2022. As a result, islandwide vacancy dropped from 6.3% as of end-2021 to 5.0% by the end 2022. 

Mr David McKellar, Co-Head of Office Services, Singapore, CBRE, said “the Singapore office market saw a gradual return to office in 2021, and this momentum had carried forward to 2022. The full relaxation of measures since late April further motivated occupiers to take affirmative action to adjust their corporate real estate needs. Amidst some right-sizings and consolidations across various sectors, we have seen net expansions coming from the technology, wealth management as well as the flexible workspace operators.” 

That said, towards the end of 2022, market sentiment has started to turn cautionary. Demand has begun to slow for the larger occupiers, especially from the tech sector. 

Ms Tricia Song, Head of Research, Southeast Asia, CBRE, says: “With the recent mass layoffs and hiring freeze from the tech sector, some tech companies have already geared towards a smaller footprint in a bid to cut real estate cost. The tech sector has generated about 40% to 50% of total gross leasing demand in Singapore over the past 2 years. We expect the amount of shadow space to potentially increase to 0.7 mil sq. ft. next year from 0.2 mil sq. ft. in Q3 2022 given that some tech companies have offered their office space on an early surrender basis.” 

Ms Song adds, “The pace of rental increase has also slowed, with Core CBD (Grade A) rents increasing by 0.9% q-o-q in Q4 2022, from 2.7% q-o-q from the previous quarter. CBRE Research has trimmed its rental forecast in 2023, for Core CBD (Grade A) rents to increase by about 1.0% y-o-y, from the previous forecast of 4.0% to 5.0% y-o-y in 2023.” 

On the back of weaker demand conditions in 2023, vacancy rates could potentially increase, as forecasted by CBRE Research. 

Mr McKellar adds, “There may be little impact for landlords with limited exposure to significant levels of vacancy and shadow space, given lease tails associated with shadow spaces. Landlords with exposure to immediate term availability may need to consider more competitive commercial terms in the near term, to compete with additional competition in the first half of 2023.” 

For occupiers, the softer market conditions during this time could provide an opportunity for them to reset and reassess their office requirements, on the back of the recovery from the pandemic. In particular, flight to quality will persist as companies have increased awareness of employees' health and wellness post-pandemic. Some tenants who are inclined to reduce their footprint can take this opportunity to upgrade to smaller but better-quality offices. 

The uncertainty in the tech sector may be temporary, as Singapore remains as a regional tech hub, and we expect the sector to continue to grow over time. In the longer term, the office rental growth prospects remain positive as future supply is relatively low and Singapore remains a business hub of choice in Asia Pacific.