Grade-A office rents to moderate as occupiers turn cautious

URA’s real estate statistics recorded a sharp 4.9% quarter-on-quarter (q-o-q) jump in office property rental index in 3Q2023, double the growth seen in the preceding quarter of 2.3%. This growth was mainly attributed to leasing deals concluded several quarters back when occupier demand was considerably robust due to the rapid expansion of the technology sector.

However, URA data showed that the median rents for Category 1 office space, which encompasses modern, newly refurbished buildings with large floor space situated in the Core Business District, experienced a 2.3% dip in 3Q2023 quarter-on-quarter – a decrease for the first time in the five preceding quarters. Similarly, median rents for Category 2 office space outside of Category 1 fell 4.5% in the same quarter, a decrease noticed for the first time since 8 quarters prior.

JLL’s findings also corroborated the drop in rents for CBD Grade-A office space, ending nine quarters of growth. Average gross effective rents tracked by JLL decreased 0.3% quarter-on-quarter to $11.29 per sq ft per month in 3Q2023.

The dip in rental prices was due to tenants successfully negotiating for more favourable terms in the current market that is largely dominated by small-to-medium space users. Landlords are becoming more accommodating as well, by sub-dividing larger spaces into leasable units, providing ready-fitted units, and lowering their rental expectations to fit the current market.

The Downtown Core saw the most robust q-o-q growth in net demand since 1Q2020 with 398,264 sq ft, in stark contrast to the -161,459 sq ft net demand experienced in the rest of the Central area, which comprises Outram, River Valley, Rochor, Newton, Orchard and Rochor area. The difference good be reflective of companies looking for high quality Grade-A offices in the Downtown Core due to the uncertain global economic conditions.

Financial and professional services continued to be strong demand drivers of office space in the CBD, making up 58% of new leases in the first nine months of 2023. Private wealth, asset management, consumer goods and tech companies that are expanding their footprint in Singapore also made up for some of the slack from the latter.

As stock removals from property redevelopments increased occupancies from 89.2% in 2Q2023 to 90% in 3Q2023, the emergence of substantial secondary stock in the Central Region and higher-than-expected new supply are expected to firm up the market.

JLL estimated that 1.1 million sq ft of Grade-A office space in the CBD remained uncommitted as of 3Q2023, and the islandwide office completion is predicted to reach a seven-year high in 2024. Close to 1.9 million sq ft of Grade-A office space is scheduled for completion predominantly from the IOI Central Boulevard Towers (1.3 million sq ft) and Keppel South Central (0.6 million sq ft).

Central Region office prices rose 0.8% q-o-q in 3Q2023, following the 1% rise in the preceding quarter. However, transaction volume remained subdued due to persisting high interest rates, as seen by the 57 office strata transactions logged in 3Q2023 – the lowest since 3Q2020.

The bustling residential area of Ang Mo Kio is a desirable address for families. An upcoming executive condominium, Lumina Grand EC, further adds to the appeal of the area. The nearby transportation links and extensive amenities make it a convenient spot for residents. Furthermore, several renowned educational institutions such as Presbyterian High School and Ang Mo Kio Secondary School are in the vicinity. These institutions provide practical, quality education and mold students into ethical leaders of the future.

CBRE Research forecasts Grade-A office rents in the Core CBD to grow by 1.5% to 2% for the whole year. However, this rate of growth is slower than the 8.3% rental growth seen in 2022, and this could be attributed to the emergence of substantial secondary stock in the Central Region as well as the higher-than-expected new supply in the CBD.