URA index for central region offices up 13.1% double in Singapore 2023
Fight for quality persists
In the search for better office space and locations, occupants are continuing to seek out higher quality spaces.
This year, rents for offices in the central area could continue to drop as supply and demands rebalance due to high interest rates. IOI Central Boulevard Towers Labrador Tower Paya Lebar Green are all set to complete by 2024 and will provide about 2.3million sq ft new office stock. In addition, there is a possibility of building up secondary spaces, i.e., vacant space in existing structures. He said that about 43% of the new supply was already pre-committed at the end 2023.
In the second half, 2024, there could be a resurgence in office relocations and extensions in the central area. With better economic circumstances and more options for the market in this region, capital spending constraints may become less of a concern. It is possible that the demand for offices will increase. While many office occupants are keeping their footprints the same or have resized them, certain offices are becoming more packed due to the rise in office use and widespread return-to office policies.
Some observers have been left puzzled over the dramatic drop in URA’s Office Space Price Index in Q4 2020. Explaining the drop, it could be because of price index changes resulting from different attributes for units sold in Q3 as compared to Q4 last.
The increase in occupied office space in Q4 was 96.900 sq. feet, compared with the previous quarter’s 247.600. The islandwide office space vacancy rate fell to 9.9% at the close of Q4 from 10.0% at the close of Q3 2023.
Overall, the Singapore office market is healthy with a small vacancy. However, there are signs of a slowed down demand for space and slower rental growth.
The widening gap in the expectations between landlords and tenants. Landlords continue to expect higher rents. However, tenants are becoming more resistant due to the weaker economic environment. Market power may shift to tenants in the next few years as more secondary and primary spaces are brought onto the market. This could put additional pressure on rents.
Colliers believes that URA’s index of office rentals in the Central Region will slow down to between 3 to 5 per cent per year by 2024.
The average gross rental value per month for the CBD Grade A offices will increase by between 1 to 3 percent this year after increasing by 4 to 5 percent in both 2023 and 2022.
As 2024 begins, there are headlines about retrenchments in the technology sector. The projected slight increase in rental rates for 2024 is a result of the current tight occupancy levels in many buildings.
One explanation could be the fact that URA computes its office rental indices based on lease commencement. Property consultants may record rents at the contracting date, which is usually earlier. The talk of layoffs was quieter in the tech field from 2022 to 2023 as compared to H2 2023. This could mean that in the year 2024, URA’s office rental index might start to stabilise slightly or even drop as leases concluded in 2019 begin.
Savills has forecast a drop in rents of 2 to 3-percent for the Grade A CBD office market this year. Rents were up by 1.1% last year after rising 2.2% in 2022. Cheong also cites the high operating cost in Singapore. Coupled to challenging business conditions, companies may be tempted to reduce staff and office space to save money.
The Urban Redevelopment Authority’s Office Rental Index for Singapore’s Central Region rose by 0.3% in the Fourth Quarter of 2023.
It was a slower rise than the 5.9% increase in Q3 2023. In total, the office rent index in 2023 grew by 13,1%, after expanding by 11,7% in 2022.
URA statistics released on January 26 also showed that in the fourth quarter of 2023 the price index for offices in the Central Region fell 5.9 % from the preceding quarter. In contrast, the Q3 2023 quarter-on-quarter rise was only 0.8 %. For 2023 as a whole, the index of the office space price fell 4.2 percent following a 0.1 percent decline in 2022.
URA data shows islandwide office demand (measured by the change from 473.600 to 893.400 sq. ft. in 2022) nearly doubled. This was due in part to the Downtown Core’s strong demand.
Analysts note that URA’s median rent for Category 1, which includes the buildings with higher quality in Singapore’s city centre, increased by 7.2 % for 2023 (based on contract dates) to S$11.52/sqft, exceeding the Category 2, (which comprises the remaining office spaces in Singapore) by 6 % to S$6.04/sqft. The vacancy rate in Category 1 offices fell to 7.5 percent at end-2023. It was 9.5 percent at end-2022.