In the second quarter of 2023, prime office rents in the CBD area increased somewhat

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Rents for offices with prime locations in the CBD area experienced a slight increase in 2Q2023, as a result of properties which were tracked by consultants. In a press announcement, CBRE notes that effective gross rents for Grade A offices within the central CBD area recorded 0.4% growth q-o-q to be $11.80 per sq ft per month. The company also states that the vacancy rate for this sector remained at a low level of 4% and are supported by steady net absorption, and no new supply.

The 2Q2023 growth brings rent increases for Grade A CBD office spaces to 0.9% for 1H2023. David McKellar, CBRE co-head of office services in Singapore is of the opinion that the market for office space overall is experiencing a steady demand, driven to by maritime companies as well as private firms that manage wealth and assets legal firms, legal firms, professional services and public agencies. In the quarter, there was a renewed expansion in leasing demand from companies that offer flexible workspaces, which have seen an increase in occupancy rates at their facilities.

In the 2Q2023 report on the office sector, Knight Frank Research found that the rents for prime offices it studies located in Raffles Place and Marina Bay precinct rose 1.2% in a q-o-q period to an average of $10.96 per square foot per month. It also notes that this boosted rental growth up to 2.5% in the first second quarter of 2023 despite escalating tensions between the US and Russia, rising inflation and the prevailing economic uncertainty.

Knight Frank reports that occupancy rates at Raffles Place and Marina Bay were healthy, registering as 95.8% and 94.4% and 94.4%, respectively, during 2Q2023 and as businesses continued to search for high-quality spaces located in the CBD.

CBRE says that the mood is uneasy in the current low-interest rate environment as well as a slowing in economic growth forecasts. It also says that the shadow office space is “quite excessive” and is likely to grow in the second half this year. CBRE’s director of research for Singapore as well as Southeast Asia, Tricia Song is of the opinion that office owners in the fields of technology, cryptocurrency and consumer banking could think about relocating their offices due to the current business conditions.

CBRE anticipates the Grade A CBD office rents to stay fairly flat throughout the remainder of the year, before regaining in 2024. “With an increase in moving to higher quality offices, in the shrinking supply of high-quality office spaces within the CBD, the Core CBD (Grade A) rents are set to grow over the long term,” adds Song.

Knight Frank is taking a more optimistic view of the future and pointing out that Singapore’s labor market is still tight, with an unemployment rate of 71.7% in 1Q2023, more than the pre-pandemic average which was 65.9%, while overall unemployment was low, with 1.8%.

With a tight supply of office space of office space in downtown CBD as well as occupancy rates that are backed by trends in flight-to safety and flight-to quality, Knight Frank foresees potentially higher rents than what was previously predicted. It expects rents for prime offices to rise between 3% to five% in the coming year. This is which is an increase from the 3% growth forecast made by the time 2022 was over.