Singapore Q1 office rental growth maintains its momentum from 2022

The office rental index grew 5.1% in Q1.

Based on leases which commenced in 1Q23, URA’s 1Q23 office rental index for the Central Region rose 5.1% q-o-q, keeping pace with the momentum in 4Q22. 

JLL believes the robust growth is largely a reflection of the buoyant office leasing market in 2022 since leases are typically signed or renewed several months ahead of commencements.

Here’s more from JLL:

The rental index could also receive a boost from the conclusion of a higher volume of smaller deals which typically command higher psf rates. JLL observed that leasing activity in 1Q23 was largely led by the small and medium-sized space occupiers with immediate needs to accommodate new workplace design or increased headcounts that took place in 2022. Large space occupiers have generally retreated to the sidelines amid mounting economic headwinds and downbeat economic prospects.

Fresh dampeners in 1Q23, including the banking crisis arising from the collapse of Silicon Valley Bank and the takeover of Credit Suisse, and the deepening of the technology sector consolidation, have further slowed leasing activities. This led to 

JLL’s average signing rent for a fixed base of Grade A offices to edge up at a moderate pace of 1.0% q-o-q in 1Q23 to SGD 11.30 psf per month from the SGD 11.19 psf per month recorded in 4Q22. This is a slowdown from the 1.2% q-o-q growth managed in 4Q22, when rent increases first started to show signs of moderation since recovering from the pandemic-led downturn.

Modest rent growth foreseen for the near-term

Downside risks to economic growth – both globally and domestically – have risen in 1Q23. We expect this to keep occupier sentiment soft in the coming quarters. While we expect leasing activity for recently or soon-to-be completed projects such as Guoco Midtown and IOI Central Boulevard Towers to maintain good traction as occupiers with strong balance sheet take opportunity to lock-in good quality office spaces, backfilling of spaces vacated by relocating occupiers could take a little longer given the subdued sentiment. This will likely keep signing rent growth modest, if at all, for the rest of 2023.

Strengthening demand for investment grade strata offices to lend support to prices

On the sales front, we expect strengthening demand for investment grade strata-titled offices could lend some support to office prices which registered muted growth in 1Q23 based on URA’s price index for offices in the Central Region.

Strata office transactions have dominated the office investment sales market (deal size of at least SGD 5 million) in the last six months, accounting for over 53% of the sales by value, up from an average of 15% over the past 5 years. Cash-flushed, ultra-high-net-worth individuals and family offices have been particularly active.

Notable strata office deals sealed in 1Q23 include the sale of five full strata floors at the newly launched freehold Solitaire on Cecil, which were reportedly sold to high-net-worth individuals and family offices. The developer sold two floors, levels 6 and 12, during its preview, for SGD 3,865 psf and SGD 4,196 psf, respectively. Another three office floors (levels 17, 18 and 20) were recently sold for a total SGD 162.8 million, or SGD 4,300 psf on a blended basis. In particular, level 20 was sold at SGD 4,325 psf, a record unit price for a full floor space in a strata-titled office building in Singapore.

We foresee more funds could be channelled into this asset class following the fresh round of residential market cooling measures targeted at curbing investment and foreign purchases of residential properties that were announced on 26 April 2023.