Singapore Grade A office vacancy rate drops 1.4ppts to 5.8% in Q3

The drop could be attributed to tenants who have just started moving into their pre-committed spaces.

According to Savills, while flight to quality continues to drive office demand for new buildings, some older buildings are still feeling the pressure from firms seeking to right-size their office space. 

“Despite an uptick in larger organisations announcing plans to reduce space, this is only taking place in 2022/2023 when their current leases expire.”

Here’s more from Savills:

Meanwhile, office availability is likely to become even tighter as more tech firms such as Bytedance, Amazon and Facebook, plan on expanding. Thus, even though leasing activity slowed in Q3/2021, tech firms are in the process of planning for expansion. 

In Q3/2021, CBD Grade A offices tracked by Savills recorded a net demand of around 470,000 sq ft. Much of that came from Bytedance. With the supply of office space remaining unchanged and leasing demand rising during the quarter, the CBD Grade A vacancy level fell 1.4 ppts QoQ to 5.8% in Q3/2021. The drop in vacancy level could be attributed to tenants who committed earlier and only began moving in in the reviewed quarter.

Notably, the significant take-up in buildings such as One Raffles Quay and 79 Robinson Road are likely because their new tenants namely ByteDance and Boston Consulting Group took physical possession of their new office space respectively. As a result, the vacancy rate in Marina Bay and Shenton Way fell, while that in other areas such as Tanjong Pagar and Beach Road/ Middle Road went up in Q3/2021.

Rents

In Q3/2021, Savills CBD Grade A office rents ended six consecutive quarters of decline with the average gross effective rent in our basket holding at S$9.37 per sq ft. Similarly, rents for those rated AA and A in our basket also hit a trough and moving on, landlords are attempting to reduce their rent concessions. 

While rents for Grade AA offices inched up by 0.2% QoQ, Grade A offices remained unchanged from Q2. Despite lower vacancy and tighter available stock, rents for Grade AAA offices in our basket fell again in Q3/2021, down by 0.5% from the previous quarter. This could be due to some Grade AAA office buildings which are under pressure to recalibrate their rents to attract new or retain existing tenants. As a result, rents in Marina Bay, where most Grade AAA offices are located declined by 0.4% QoQ in Q3/2021. 

On the other hand, other key business districts such as Raffles Place and Shenton Way micro-markets where there is a blend of Grade A and AA offices, saw quarter-on-quarter rental growth remaining flat in Q3/2021. Meanwhile, rents in Tanjong Pagar were lifted by a few Grade AA office buildings in the basket, reversing six straight quarters of rental decline with a 0.5% QoQ increase.