Singapore shadow office space halved to 0.33m sq ft in Q3

It was at a record high of 0.7m sq ft in Q1 2023.

CBRE has observed an upturn in the Core CBD (Grade A) office market sentiment, with better-than-expected leasing activity and absorption of shadow space. 

Leasing activity in the Core CBD (which consists of Raffles Place, Marina Bay, Marina Centre, and Shenton Way) has picked up among Grade A office buildings, as seen in the positive net absorption of 0.11 million sq. ft. in Q3 2023, compared to a more modest level of net absorption of 0.03 mil sq. ft. in the first half of 2023. 

Gross effective rents for this market have also increased by 0.4% q-o-q in Q3 2023 to reach S$11.85psf/month, at a similar pace as the last two quarters as vacancy levels decreased to 3.2%, from 4.0% in the previous quarter. 

David McKellar, CBRE Co-Head of Office Services, Singapore observed, “More diversified demand drivers has made up for the slack resulting from the slowdown in the tech sector, as we have seen shadow space tapering off. Occupiers in co-working and asset management have been among the various businesses that have taken up chunks of these shadow spaces, seizing the opportunities to move into fitted office spaces in the prime Marina Bay and Raffles Place areas.” 

CBRE has observed that the amount of shadow space in Q3 2023 has halved to 0.33 million square feet, from the record high of 0.7 million square feet in Q1 2023. 

“Increased office usage has likely also contributed to this heightened demand for space that we are experiencing. Anecdotally, many companies have been mandating that employees return to the office for more days in a week. In addition, despite concerns following WeWork’s recent challenges, other flex office operators in Singapore appear undeterred, and have continued to expand their presence within the CBD”, Mr McKellar added. 

Flight to quality and flight to green are other trends that have held steady, as workplace-led changes have encouraged more relocations and adjustments to more efficient footprints. Such demand was seen especially in the private wealth, asset management, and consumer goods sectors. 

Correspondingly, Core CBD (Grade B) rents have deteriorated for the first time after seven consecutive quarters of increase, declining by 0.6% q-o-q in Q3 2023. This points to a widening two-tier market that CBRE has previously alluded to, as older office buildings with less attractive attributes face rental pressures from rising vacancies.