Prime office rentals rise somewhat in 2Q2023, while occupancy rates remain stable

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The rents for prime offices in the CBD region saw a marginal increase in the 2Q2023, based upon properties which were tracked by consultants. In a press announcement, CBRE notes that effective gross rents for Grade A offices located in the central CBD region registered 0.4% growth q-o-q to increase to $11.80 per square foot per month. The company also states that the vacancy rate for this segment were low, at 4% which is supported by steady net absorption and a lack of new supply.

The 2Q2023 growth brings an increase in the rental rate for Grade A CBD offices up to 0.9% for 1H2023. David McKellar, CBRE co-head of office services in Singapore is of the opinion that the office market overall is experiencing a steady demand, driven from the marine industry as well as private wealth and asset management firms legal firms, law firms, professional service providers and public agencies. In the quarter, there was a renewed increase in the demand for leasing from flexible workspace providers who have seen higher occupancy rates at their centers.

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% between q-o -q, resulting in an average of $10.96 per square foot per month. The report also states that this boosted rental growth at 2.5% in the first second quarter of 2023 despite escalating tensions in the geopolitical arena, pressures from inflation and the prevailing economic uncertainty.

Knight Frank reports that occupancy rates for Raffles Place and Marina Bay were healthy, registering as 95.8% and 94.4% and 94.4%, respectively, during 2Q2023 in the midst of businesses continuing to look for quality space located in the CBD.

CBRE reports that people remain cautious in the current high-interest rate environment as well as a slowing in economic growth forecasts. The report also notes that the shadow office space is “quite excessive” and is likely to grow in the second half in the coming year. CBRE’s director of research for Singapore as well as Southeast Asia, Tricia Song states that those working in the fields of technology, cryptocurrency and consumer banking could be tempted to give up office space because of the challenging business conditions.

CBRE believes grade A CBD office rents to stay fairly flat throughout the remainder of the year, but will begin to rise in 2024. “With an increasing trend of moving to higher quality offices, in an ever-shrinking supply of quality office spaces within the CBD, the Core CBD (Grade A) rents are positioned to grow over the long term,” adds Song.

Knight Frank is taking a more optimistic view of the future in the near-term, stating that Singapore’s employment 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, in the range of 1.8%.

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