Singapore office sector to be a “landlord’s market” going into next year

Rents are expected to rise by up to 5% for this year.

Prime Grade office rents in Singapore’s Raffles Place / Marina Bay precinct increased 1.4% q-o-q in Q3 2022, averaging S$10.51 psf pm, according to a Knight Frank report. Rental growth rose by a cumulative 5.3% y-o-y since rents bottomed out in Q3 2021. 

Due to the non-excessive supply of new office inventory coupled with increasing demand for prime space, market balance shifted to landlords providing support for the higher rents this quarter. 

Here’s more from Knight Frank:

Occupancy levels in the Raffles Place / Marina Bay precinct remained healthy at 95.4% with the overall CBD occupancy maintaining 93.6% during the quarter. Many businesses are bringing employees back to the office as functions resume to pre-pandemic levels and as companies expand head count in the second half of the year to meet the operational needs of a normalising economy.

Demand Drivers

Business service firms in the Asia-Pacific (APAC) region are increasingly relocating their headquarters to Singapore due to geopolitical tensions. With Singapore identified as a key business node by many multinational companies (MNCs) in a continued “flight to safety”, demand for office space was healthy as corporates sought the stability of the city-state for business continuity. 

Technology start-ups from South-East Asian countries such as Indonesia, private equity companies and family offices (FOs) have also been on the increase in Singapore, attracted by the established sophisticated financial infrastructure and political stability. TR Capital opened an office at CapitaGreen in Singapore as the private equity firm expanded its investment footprint in South-East Asia. 

As commerce needs evolve, so too the office landscape. WeWork opened its largest co-working office space at 21 Collyer Quay, occupying over 220,000 sf. Co-working spaces provide new market entrants and funded start-ups with a good flexible and conducive working environment, before these companies grow and transit to traditional leasing arrangements. 

With the availability of co-working spaces, older, increasingly obsolete office buildings in the CBD will experience stiff competition for such occupiers. To remain competitive in the contemporary office arena, ageing office buildings might need to consider redevelopment or asset enhancement options so as to remain relevant.

Economic Sentiment and Outlook

Total employment reached 99.5% of pre-pandemic levels in Q2 2022 with retrenchments at a record low, and further expansions in business headcounts expected. In a survey conducted by the ManpowerGroup, one in two companies plan to increase headcount by Q4 2022, despite ongoing economic and geopolitical headwinds. Sectors such as banking, finance, real estate and insurance registered an increase in hiring sentiments by ten percentage points q-o-q in Q3 2022 and 44 percentage points y-o-y.

Although global inflation, supply chain and material disruptions, and geo-political unrest are combining to push global economies into a slowdown, Singapore remains poised as a shelter for multinational firms to weather the coming economic challenges. With occupancies steadily tightening and leasing activity to remain firm for the rest of 2022, Knight Frank maintains its forecast of 3% to 5% growth in rents for the whole of the year with the sector increasingly becoming a landlord’s market going into 2023.