Archive for category: Misc

The office property market in Singapore ended 2023 on a subdued note according to URA’s quarterly report on Jan 25. This report showed a 5.9% q-o-q drop in commercial office prices for 4Q2023, reversing the small uptick seen in 3Q2023. Overall, 2023 saw a 4.2% decrease in office prices.

“JLL had started to observe weakening occupier demand as early as 2Q2023,” says Tay Huey Ying, head of research and consultancy at JLL Singapore. This was due to the downcast global and domestic economic outlook, coupled with the higher interest rate environment, which made occupiers cautious, resulting in shelved expansion and relocation plans.

(Source: URA)
The steep fall in the URA office property price index in 4Q2023 is not surprising, given the pressure of asset repricing caused by the negative yield spread over borrowing costs in the prolonged elevated interest rate environment,” adds Tay.

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According to CBRE’s head of research for Singapore and Southeast Asia Tricia Song, office rents in the Central Region only increased 0.3% in 4Q2023, which is the lowest quarterly growth for 2023. This is after a 4.9% q-o-q increase in 3Q2023. Overall, office rents increased by 13.1% in 2023, higher than the 11.7% increase in 2022. She notes that some occupiers are choosing to renew their existing leases at higher reversionary rents rather than relocate, in order to manage costs in the current market.

Given the higher capital expenditure and interest rates, some occupiers were renewing existing leases at higher reversionary rents rather than relocating, says Song. She adds that space availability remains “extremely tight due to limited supply.”

“Selected premium office space with quality specs in the Core CBD was also highly contested among competing tenants, leading to rental escalation,” says Song. She noted that shadow spaces in prime areas such as Marina Bay and Raffles Place proved attractive to occupiers seeking high-quality, fitted-out office spaces.

Meanwhile, some tech occupiers have decided to retain their office premises instead of putting them on the market, further contributing to the scarcity of supply. URA data shows a positive net absorption of 0.1 million sq ft in 4Q2023, following a 0.25 million sq ft absorption in 3Q2023. The island-wide vacancy rate was 9.9% in 4Q2023, slightly lower than 10% in 3Q2023.

Core CBD (Grade A) rents grew by 1.7% y-o-y, moderating from the 8.3% rental growth in 2022, notes CBRE Research. “The market may face a slower 1H2024 with an above-average completion pipeline in 2024 and potential secondary spaces, which could temporarily increase availability,” notes Song.

(Source: CBRE Singapore)
The soft occupier sentiment is expected to continue as layoffs have been announced at the start of the year in major companies such as Lazada, Google, YouTube, Amazon, Tencent Holdings’ Riot Games, and Unilever. However, JLL’s Tay believes that demand for office space can rebound quickly with improved economic conditions.

Read also: BigFundr offers a 6% return on real estate-backed investment opportunities, guaranteed by Maxi-Cash

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Singapore’s economy is showing signs of a nascent recovery, with the advanced estimates of the Ministry of Trade showing a 4Q2023 GDP growth of 2.8% y-o-y, up from 1.0% y-o-y in 3Q2023. “The extension of this recovery into 1H2024 could lift business confidence and unleash pent-up demand in 2H2024,” says Tay. “Occupiers who have held back on relocation or expansion plans in 2023 could restart new lease negotiation conversations. Should this pan out, office rents could firm and potentially trend up in 2H2024.”

(Source: URA)
Sentiment is expected to improve in 2H2024 as interest rates and inflationary pressures ease, according to CBRE’s Song. With the flight-to-quality and flight-to-green trends expected to continue, CBRE Research predicts that Core CBD (Grade A) rents will grow at a moderate pace of 2%-3% in 2024.

Investors who have been waiting on the sidelines are starting to re-enter the market with the end of the Fed rate hike cycle. The successful sale of VisionCrest Commercial in Orchard to a consortium comprising TE Capital Partners, LaSalle Investment, and Metro Holdings in Nov 2023 could pave the way for more office deals, supporting the upside in asset prices in 2H2024.

Caption: VisionCrest Commercial was jointly acquired by Metro, TE Capital, and LaSalle Investment for around $450 million. (Credit: Samuel Isaac Chua / EdgeProp Singapore)

Overall, the office property market in Singapore ended 2023 on a subdued note, with a 5.9% q-o-q drop in commercial office prices for 4Q2023. This was caused by a downcast global economic outlook and higher interest rates, leading to occupiers shelving expansion and relocation plans. However, there are signs of a nascent recovery in Singapore’s economy, which could lift business confidence and unleash pent-up demand in 2H2024. As a result, office rents may firm and trend up in 2H2024. Investors are also starting to re-enter the market, with the end of the Fed rate hike cycle, and successful office deals may support the upside in asset prices in 2H2024. Overall, the outlook for the office property market in Singapore remains positive.