Grade A office rents in the CBD saw an increase in the 1Q2023, with the gross effective rent for office spaces hitting an average of $11.30 psf per month, according to real estate consultancy, JLL. However, this 1.0% q-o-q growth was overshadowed by the 1.2% q-o-q growth seen in the previous quarter, marking the first slow-down of growth in five consecutive quarters.
Andrew Tangye, JLL Singapore’s head of office leasing and advisory, attributed this easing rental growth to the macroeconomic uncertainties that hindered the demand for office space. He noted that large space users decided to put expansionary and relocation plans on the back burner.
“Leasing activity in 1Q2023 was driven mainly by small-to-medium-sized space occupiers with immediate requirements such as new market entrants and those looking to accommodate new workplace design or increased hirings that took place in 2022,” Tangye points out.
Examples of such occupiers include Munich Re, who took up two floors at 18 Cross Street for its new office, and fine wine merchant Corney & Barrow, which relocated to Hub Synergy Point.
Despite the current “cautious mood”, Tay Huey Ying, JLL Singapore’s head of research and consultancy, observes that the tight supply of Grade A office space saw some occupiers seizing the opportunity to upgrade to better office space at new and upcoming completions.
Two of these new office spaces are Guoco Midtown in the Bugis-Beach Road area, which received its Temporary Occupation Permit in January with 80% of space already secured, and IOI Central Boulevard Towers in the Marina Bay financial district. JLL estimates that 45% of the space at IOI Central Boulevard Towers is already pre-committed or under advanced negotiation, and the building is due to be completed in 3Q2023.
Also due to be completed in 2024 is the Labrador Tower along Pasir Panjang Road. JLL estimates that it is 25% pre-committed one year prior to its completion. Its tenants include Prudential, with 150,000 sq ft of space in the Green Mark Platinum Super Low Energy development secured with a 15-year-tenure expiring in November 2024.
Given the current macroeconomic environment, Tay believes office demand will remain more muted. While leasing activity for recent or soon-to-be-completed projects is expected to persist, she expects backfilling of spaces by relocating occupiers to take a longer time. She anticipates that this will likely keep rent growth modest, if at all, for the rest of the year.
Tangye, however, predicts that the post-2024 period will be a different story. With a sharp dip in new completions and an upswing in demand due to the improved economic prospects, Tangye believes rental growth will accelerate. He urges occupiers, especially large space users, to take advantage of “this window” to secure spaces in new, good quality office buildings.