Singapore CBD Grade A office rents may cross pre-pandemic peak by Q3: JLL

GRADE A office rents in Singapore’s Central Business District (CBD) continued their steady upward momentum for the fifth straight quarter in Q2 2022 to recover to 0.6 per cent below the pre-pandemic peak of S$10.81 per square foot (psf) per month in Q4 2019, according to JLL Singapore.

Based on figures provided by the firm on Wednesday (Jun 29), Grade A CBD office rents rose 2.7 per cent to S$10.74 psf per month in the latest quarter from S$10.46 in Q1 2022.

Notably, Marina Bay experienced the sharpest quarter-on-quarter rent growth at 3.4 per cent, among the 4 CBD submarkets tracked by JLL, due to its “relatively new and good quality” office developments.

Tay Huey Ying, JLL Singapore’s head of research and consultancy, attributes the latest quarter’s growth to an increase in business confidence arising from the relaxation of safe management measures, which allowed for all employees to return to workplaces from Apr 26, 2022.

She added that expansions and new set ups also “far overshadowed” workplace downsizing, leading to Q2 2022 net absorption of CBD Grade A office space reaching the highest in 17 quarters. 

While Tay noted that geopolitical and economic uncertainties could temper business confidence and dampen occupier demand for office space in H2 2022, the availability of space in the CBD still remains tight. 

“Upward pressure on rents should persist and Grade A CBD office rents should breach the pre-pandemic peak of S$10.81 psf per month within the next quarter given the 0.6 per cent gap as of Q2 2022,” she said. 

She added that Grade A CBD office rent growth for the entire year of 2022 could double the 4.3 per cent growth registered in 2021.

Additionally, JLL highlighted that the availability of good quality office space has become increasingly tight in the CBD with large space users finding it “especially difficult” to source for suitable alternative premises. 

“The fast rising rents and tight supply have also encouraged more occupiers to commit to forward leases to lock in space and rents. Over the quarter, this helped to drive up pre-commitment rates for Guoco Midtown and IOI Central Boulevard Towers,” said Andrew Tangye, head of office leasing and advisory for JLL Singapore. 

Tangye also observed “very positive” leasing activity since the end of 2020 and expects most of this to continue into the second half of the year. However, he also noted that global economic headwinds are starting to affect some occupiers in their real estate decisions.

On the capital front, JLL Singapore’s head of capital markets Lim Ting believes that the continued positive office leasing market activity underscores the resiliency of the Singapore office demand amid current global conditions. 

“The rerating of the interest rates has impacted investors’ underwriting significantly. However, demand for premium commercial opportunities remains strong on the back of longer-term positive rental upside and high barriers to entry,” Lim added. 

This version of article written by ALVINA SOH YIJING and first appeared at The Business Times.