Singapore prime office occupancy rate rises for the first time since COVID hit

Occupancy rate in the Raffles Place / Marina Bay precinct reached 94.3% in Q2.

Prime Grade office rents in the Raffles Place / Marina Bay precinct continued their decline in the second quarter of 2021, easing moderately by 1.0% quarter-on-quarter (q-o-q) to S$9.96 per square foot per month (psf pm). 

Despite the decline, Knight Frank says rents showed hopeful signs of bottoming soon as the occupancy rate for prime offices in the precinct increased for the first time since the start of the COVID-19 pandemic, growing 0.1 percentage points (pp) q-o-q to reach 94.3% in Q2 2021. 

Here’s more from Knight Frank:

Even though business sentiment improved with the recovering economy, pre-termination space remained fairly stable in Q2 2021 with over 360,000 sf available compared to the 344,000-sf estimate in Q1 2021. This increase in shadow space was largely a result of right-sizing due to the adoption of rotational work-from-home (WFH) protocols, more so than businesses downsizing. 

For similar reasons, banks and financial institutions also trimmed their office footprints. This has freed up space in prime buildings that were typically full, hence fueling “flight-to-quality” moves that characterise the current market activity. As a result, both shadow space and space given up at natural lease expiry in prime buildings should be absorbed.

Demand drivers

Despite the latest round of movement restrictions as a part of Phase 2 (Heightened Alert), office landlords and tenants were more composed compared to during the circuit breaker of 2020. Familiarity with WFH measures, adaptive practices, and a better appreciation of the pandemic era need for office space, have given corporates the confidence to continue to operate or even expand in the business node of Singapore. 

Nevertheless, with the ongoing threat of recurrent COVID-19 outbreaks and substantial new office developments in the immediate pipeline, most landlords remained flexible on rates in order to secure occupancy. While this could temper rates in the immediate term, rents should settle and firm up as office inventory dwindles. 

During the course of the pandemic, an increasing distinction is being drawn between individual ‘me-work’ and collaborative ‘we-work’. Although ‘me-work’ may be conducive for WFH routines, both management and employees are increasingly cognizant of the benefits of office-based ‘wework’. The collaborative settings needed to drive creativity, especially in the information and technology sector, continued to fuel demand for office space. For example, Shopee parent, Sea Limited secured a new office at Rochester Commons, taking up some 180,000 sf that will complete in H1 2022. 

Additionally, Singapore’s globally accommodative policies and reputation for stability continued to draw multinational corporations using the country as a base to tap the potential of the South East Asian region.