Singapore office net absorption breaches 10-year average in 2022

The net absorption hit 1.15m sq ft during the year.

Singapore’s office sector continued to outperform expectations after restrictions were completely lifted in April 2022. There was positive net absorption of 0.59 mil sq. ft in Q4 2022., supported by the high commitment rates of Guoco Midtown. 

According to CBRE data, this boosted 2022’s net absorption to 1.15 mil sq. ft., which was 3.6 times 2021’s net demand of 0.32 mil sq. ft., and 17.9% higher than the 10-year average of 0.97 mil sq. ft. As a result, islandwide vacancy dropped from 6.3% in 2021 to 5.0% by the end of 2022. 

Here’s more from CBRE:

Prime rents continued to rise on the back of firm return-to-office demand and healthy building occupancies. Gross effective rents for Core CBD (Grade A) grew for the seventh consecutive quarter to $11.70 psf/mth by the end of 2022, reflecting a full year growth of 8.3% and surpassing the rental growth of 3.8% in 2021. That said, the pace of rental increase has slowed from 2.7% q-o-q in Q3 2022 to 0.9% q-o-q in Q4 2022. 

Market sentiment turning cautious 

Demand in Q4 2022 was mainly driven by the legal sector, FMCGs and non-banking financial companies. However, there continued to be some right-sizing and consolidations across various sectors. In addition, demand has begun to slow for the larger occupiers towards the end of 2022, especially from the tech sector. 

Given that some tech companies have offered their space on an early surrender basis, the amount of shadow space is expected to increase. Landlords with exposure to immediate term availability may need to consider more competitive commercial terms in the near term, to compete with existing vacancies. 

Rental growth to slow in 2023, window of opportunity exists 

With the expected weaker demand conditions and economic growth in 2023, CBRE Research has trimmed its 2023’s rental forecast. Core CBD (Grade A) rents are expected to increase by about 1.0% y-o-y, from the previous forecast of 4.0 - 5.0% y-o-y. That said, the softer market conditions in 2023 could be an opportune time for occupiers to reset and reassess their office requirements.