Core CBD Grade-A office rent growth in 2022 increased by 8.3%, breaking the previous record of 3.8% growth
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Office rents for Grade A offices in the CBD have been higher than the levels that were recorded in 2021, according research conducted from CBRE Research. In a announcement, the company declares that Core CBD Grade-A office rental rates have increased to $11.70 per month, psf by the end of 2022. The full-year growth in rent is at 8.3%, exceeding the 3.8% growth recorded in 2021.
The growth rate was helped by the expansion to Guoco Midtown, which boosted the island’s net absorption to 1.15 million sq feet by 2022, which is 3.6 times more that 2021’s absorption net that was 0.32 mil sq feet. The islandwide vacancy rate also decreased by 6.3% as of end-2021 to 5% by 2022’s end. The 2022 net absorption figure is 17.9% higher than the 10 year average annual net absorption rate of 0.97 mil sq feet between 2013 and 2022, says CBRE.
David McKellar, CBRE’s co-head of office services Singapore and Singapore, explains that the office market’s growth comes on backdrop of the continued momentum for returning to office. “The complete relaxation of the measures that were in place since the end of April also prompted office owners to take a proactive step to alter their needs for real estate in their businesses,” he explains.
Yet, CBRE notes that office market sentiment is beginning to “turn cautious” towards the closing of 2022. Demand is slowing for larger occupiers, specifically those working in the tech industry. “With recently announced mass layoffs and the hiring suspensions in the tech sector some tech firms are already planning to move to having a smaller footprint to lower the cost of real estate,” remarks Tricia Song director of research Southeast Asia at CBRE.
Song expects that the shadow space will possibly increase from 0.2 million square feet in 3Q2022 to 0.7 million square feet next year, as several tech firms have offered offices on an early surrender basis. In the past 2 years, technology firms have accounted for around 40% between 40 and 50% percent of all demand for gross leasing in Singapore.
Song is also adamant that the pace of office rent growth has been slowing. In the 4Q2022 period, Core CBD Grade A office rents climbed 0.9% q-o-q, easing from the 2.7% q-o-q growth registered in the previous quarter. Therefore, CBRE has reduced its 2023 rental forecast. CBRE is currently projecting Core CBD Grade A office rents to rise by one% annually as opposed to its prior estimate of 4% 5-% growth.
It is also possible that the rate of vacant homes will rise in 2023 on due to weaker demand. McKellar suggests that landlords with empty spaces or “immediate short-term availability” could need to consider more competitive terms in order to stand out from more competitors in the 1H2023.
With the current softer market conditions, office owners might reconsider their requirements for office space. “In Particular, the move towards quality will continue because companies are more aware of employee well-being and health post-pandemic.” CBRE states.
Despite the uncertainties that exist in the near-term, CBRE believes office rental expansion prospects in the long time frame are optimistic as the supply remains “relatively minimal”. Additionally, Singapore’s position as a regional business and technology centre located in Asia Pacific will continue to help the market.