Why Singapore’s office leasing market in Q1 was nothing short of complex

There’s increasing demand, yet the stock of shadow spaces is also growing.

According to a recent Savills report, the picture of Singapore’s office leasing market was one of complexity. 

There is robust leasing demand in the Lion City, however, shadow spaces are also continuously growing. 

Here’s more from Savills:

On one hand, the market continued to receive a considerable number of leasing enquiries with office sizes mostly in the range of 3,000 to 7,000 sq ft. Such demand comprises a mixture of tenants from different industries embarking on modest expansion or downsizing. 

On the other hand, the stock of shadow space was and is still growing. This arose from the economic slowdown, continuous tech layoffs and turmoil in the global banking industry. Affected companies, especially tech firms and banks, have already put-up space for sub-letting or if they can, return those excesses to the landlords. Many tenants are also reconfiguring the usage of their space to cut costs. 

Nonetheless, as the natural expiration dates for most of these shadow spaces are still some way off , there is less pressure on landlords to drop rents for now. In fact, for the top of the Green buildings, rents are still rising. Coupled with limited new supply for most of this year, the leasing market is still favouring landlords. Landlords know this and thus, although we see vacancy levels rising, rents are still rising, albeit at a pedestrian pace. 

The office investment market is pitting fears of higher interest rates and an increasing probability of seeing property values dip, against the inflow of foreign funds looking to diversify from other assets, a tale of two buyers’ market emerges. On the strata-titled office front, keen buying interests, particularly from Ultra-High Net Worth Individuals (UHNWIs), continued. 

For example, the sixth and 12th floors in the upcoming 20-storey freehold office project Solitaire on Cecil were sold at S$3,867 per sq ft (psf) and S$4,196 psf of strata area respectively. In contrast, the office block transactions remained relatively tepid as institutional investors stood on the side lines. 

In the quarter, the freehold commercial building at 39 Robinson Road was sold to a joint venture led by China-based Yangzijiang Shipbuilding for S$399.0 million, or S$2,970 psf based on net lettable area . The other significant deal is the S$80.0 million sale of GSM Building at Middle Road to the local LHN Group.