URA’s central region office index is up 13.1%, nearly doubling the islandwide office demand by 2023.
It is possible that the URA’s office rental indexes are calculated using the lease commencement dates. The rents could be recorded by property consultants at the time the lease agreement was made, which may be earlier. In H2 2023, there was less talk about layoffs than in 2022. The URA Office Rental Index may stabilise in 2024 or even start to decline as leases that were contracted in 2020 mature and commence in 2025.
Savills forecasts that the rents for its Grade A CBD offices will drop by 2 to 3% this year. In 2022, they increased by 2.2%. Cheong points out, among other things, Singapore’s high operating costs. Coupled with challenging economic conditions, this may lead companies to reduce their headcounts and shrink the size of their office spaces to save money.
URA data indicates that, islandwide, net new office demand as measured by change in occupied space has almost doubled, to approximately 893,400 square feet in 2023, from 473,600 square feet in 2022. The demand is driven by Downtown Core (which includes Raffles Place Marina Bay, and Shenton Way).
Analysts have noted that URA’s median monthly rent (based on the contract date) for category 1 offices (covering buildings of higher quality in the city) increased by 7.2 per cent in 2023. This was more than the 6 per cent increase in Category 2 rent (which covers remaining office space in Singapore), which rose to S$6.04 per square foot. The vacancy rates for Category 1 offices have fallen from 9.5 to 7.5 as of the end of 2023.
The Urban Redevelopment Authority’s (URA’s) office rental index in Singapore’s central region increased by 0.3 per cent over the previous quarter during the fourth quarter of the year 2023.
The increase was slower than the Q3 2023 gain of 4.9 percent. In 2023 the index of office rentals grew 13.1% after increasing 11.7% in 2022.
URA data released Friday (Jan.26) showed the price index for office space in central region also fell 5.9 percent in Q4 of 2023, from the previous period. This contrasts with a quarter on quarter increase of 0.8% in Q3 of 2023. In 2023 the index of office prices fell 4.2 % after declining 0.1 % in 2022.
Net lettable area (NLA), the measure of the amount of occupied offices, increased by approximately 96.900 square feet in Q4 of 2023. This is down from an increase of 247,000 sq ft the quarter before. At the end the Q4 2023 the islandwide vacancy for office space dropped from 10% to 9.9%.
While the statistics in general show a strong Singaporean office market with low vacancy rates, they also point to a slowing of demand and moderated rental growth.
Quality Flight Persists
The flight to better quality office space continues as occupants search for better quality, more centrally located offices. They may also adopt hybrid work arrangements to reduce their footprint.”
The central region’s office rents may continue to fall this year due to a rebalancing of supply and demand against a backdrop of high interest rates, and an increase in supply. IOI Central Boulevard Towers (which are due to be completed by 2024), Labrador Towers and Paya Lebar Green will all contribute approximately 2.3 millions sq ft in new office stock. This is on top of a potentially large build-up of secondary space in existing building. He also noted that 43 percent of this new supply had already been pre-committed by the end of 2023.
The second half of 2024 could see an increase in office relocation and expansion in the Central Region. There will be more options available on the market as well as a possible ease in capital expenditures due to better economic conditions. Particularly, pent up demand for office space may be growing. Since the pandemic many occupants kept their office footprints intact or right-sized, some offices have become more crowded.
Some observers are baffled at the significant drop in URA’s office space price index from Q4 to Q4 in 2023. Price index fluctuations could be a result of the different characteristics of units sold between Q3 and Q4 in last year.
The gap between expectations of tenants and landlords is widening. The gap between landlords’ and tenants’ expectations is widening. Market power could shift away from landlords over the next few months as more primary spaces and secondary space enter the market.
Colliers anticipates that in 2024, the growth of the URA’s central region office rental index should moderate to between 3% and 5%.
The average gross monthly rental value in its CBD Grade A office will rise by 1 to 3% for the entire year. This is after it grew by 4.1 % in 2023 and 5.5% in 2022.
In 2024, headlines have been filled with retrenchment stories in the tech sector. The modest increase in rents for 2024 is due to the tight occupancy of most buildings within this segment.