Singapore Grade A office rents to breach pre-pandemic peak by Q3

Rents rose for the fifth consecutive quarter in Q2. 

One year after turning around in 2Q21, Singapore’s CBD Grade A office rents have recovered to just 0.6% below the pre-pandemic peak, according to JLL. 

The real estate consultancy’s research showed that the gross effective rents for CBD Grade A office space grew for the fifth consecutive quarter to average at SGD 10.74 psf per month in 2Q22. This is just 0.6% below the pre-pandemic peak of SGD 10.81 psf per month recorded in 4Q19.

Office rent growth has been accelerating every quarter since turning around in 2Q21, with the latest 2.7% q-o-q rise in 2Q22, a pick up from the 2.3% gain posted in 1Q22. For 1H22, Grade A CBD office rents have climbed by 5.0%, exceeding the 4.3% growth recorded for full-year 2021. 

Underpinned by intensifying emphasis on employee health and wellbeing, the Marina Bay submarket with the largest stock of relatively new and good quality office developments remained the star performer in 2Q22, clocking the steepest rise of 3.4% q-o-q in rents.

Ms Tay Huey Ying, Head of Research and Consultancy for JLL Singapore elaborates, “The Singapore office property market enjoyed a strong quarter in 2Q22. Business confidence rose on the back of the authority’s commitment to transit to living with endemic COVID reflected in the swift and extensive relaxation of safe management measures, including allowing all employees to return to workplaces effective from 26 April 2022. Consequently, expansions and new set ups far overshadowed workplace downsizing, leading to 2Q22 net absorption of CBD Grade A office space (0.6 million sq ft) reaching the highest in 17 quarters. This brought vacancy rate down by a sharp 1.8% percentage point to 6.8%, from 8.6% a quarter ago.” 

Mr Andrew Tangye, Head of Office Leasing and Advisory for JLL Singapore adds, “The availability of good quality office space has become increasingly tight in the CBD.  Large space users are finding it especially difficult to source for suitable alternative premises, thus limiting their bargaining power during lease renewals. The fast rising rents and tight supply have also encouraged more occupiers to commit to forward leases to lock in space and rents. Over the quarter, this helped to drive up pre-commitment rates for Guoco Midtown (completing end of 2022) and IOI Central Boulevard Towers (completing October 2023).” 

“We have experienced very positive leasing activity since the end of 2020 and much of this is expected to continue into the second half of the year but there are some early signs that the global economic headwinds are starting to have an impact on how some occupiers make real estate decisions.” 

JLL sees the rent uptick to continue but growth could moderate in 2H22. Ms Tay explains, “Geopolitical and economic uncertainties could temper business confidence and dampen occupier demand for office space in 2H22. However, the availability of space in the CBD will remain tight on the back of the continuing office redevelopment momentum with Clifford Centre amongst the latest to jump on the bandwagon. Hence, upward pressure on rents should persist and Grade A CBD office rents should breach the pre-pandemic peak of SGD 10.81 psf per month within the next quarter given the 0.6% gap as of 2Q22. Full-year 2022 Grade A CBD office rent growth could still double the 4.3% clocked in 2021 in light that they have already risen 5% in 1H22.”

Mr Tangye adds, “Besides demand and supply imbalance, gross rents are also under upward pressure from rising maintenance fees.  Landlords are beginning to combat inflationary pressures on operating expenses by raising maintenance fees which will be incorporated into gross rents.”