Is the worst finally over for Singapore office rents?

Rents are estimated to have risen 1.2% in Q2, the first ever increase since the pandemic hit.

Singapore’s Grade A CBD office rent posted its first uptick since caving under the stress of the COVID-19 pandemic, according to JLL’s preliminary estimates.

Specifically, the average monthly gross effective rents of Grade A CBD office space is estimated to have risen 1.2 per cent quarter-on-quarter (q-o-q) to SGD 9.90 per sq ft in 2Q21, from SGD 9.79 psf in 1Q21. This follows two consecutive quarters of slowing rent correction and is a positive sign that office rents have embarked on the road to recovery.

On the drivers for the rent uptick in 2Q21, Ms Tay Huey Ying, Head of Research and Consultancy for JLL Singapore explains, “The successful containment of the COVID-19 virus that led to Singapore’s economy re-opening in Phase 3 on 28 December 2020, coupled with the roll-out of the vaccination programme, have improved market sentiment and raised occupier confidence. This has slowed down business downsizing and emboldened some corporates to consider expansions or set up offices in Singapore. The strengthening demand has provided the impetus for rent growth in 2Q21.”  

Mr Andrew Tangye, Head of Office Leasing & Advisory, JLL Singapore adds, “Leasing activity has picked up since the start of the year with interest coming mainly from growth sectors such as technology, wealth management, family businesses and healthcare. The growing emphasis on sustainable workplaces and employees’ wellness and health is driving demand to the better quality, newer and greener office assets. These are the ones leading the current rental uptrend.”    

Attesting to Mr Tangye’s point, 70 per cent or more of the 0.8 million sq ft of office space completing in 2021 from new buildings such as Afro-Asia and Capita Spring have already been taken up as of 2Q21.

JLL remains optimistic about the prospects of Singapore’s office leasing market and expects Grade A CBD office rents, which have edged up 0.9 per cent in 1H21, to continue to firm up in 2H21, potentially culminating in a full-year growth of 2 to 3 per cent. 

Ms Tay reasons, “The recent reversal of relaxation of some COVID-19 safe management measures has not unduly rattled market confidence nor dampened occupier sentiment. Demand for office space is expected to grow on the back of global economic recovery and Singapore’s attractive offerings. While the trend towards hybrid work could see occupiers continuing to rationalize their real estate requirements, space reduction from these exercises will be disproportionate to the number of employees switching to remote working. This is because corporates will need to provide a greater variety of work points such as collaboration, socializing and focus workspaces to cater to the new role of offices. There is also a pressing need to de-densify offices in response to rising employees’ expectations for a less dense workplace of the future.” 

In all, Grade A CBD office rents fell a moderate 9.5 per cent since peaking at SGD 10.81 psf/month in 4Q19. The 9.5 per cent dent in Grade A CBD office rents in the pandemic led crisis is only a fraction of the 56.5 per cent plunge recorded over six quarters from 2Q08 to 4Q09 due to the impact of the Global Financial Crisis (GFC).

Ms Ting Lim, Head of Capital Markets for JLL Singapore says, “This speaks volumes about how demand for Singapore as an office location has become much more robust, diverse and tenacious compared to a decade ago, and is one of the key reasons for investors’ unwavering interest in Singapore’s office assets.” 

Amidst Singapore’s worst post-independence economic recession, investors injected 270 per cent more capital into the sector in 2020 than during the GFC. Year-to-date, investors have acquired some SGD 1.71 billion worth of Singapore office assets (equivalent to 76 per cent of the office sales quantum in full-year 2020) with a record price of SGD 4,050 psf set for a strata floor in Samsung Hub in June 2021.

Ms Lim concludes, “The affirmation that Singapore’s office rents have bottomed will likely intensify competition for asset acquisitions and drive a fresh wave of price appreciation.”