Grade A office rents to maintain strong growth trajectory as vacancies fall: Savills

RENTAL of Grade A offices in Singapore’s Central Business District (CBD) will maintain a strong growth trajectory in the near term, as demand increases and vacancy levels contract further in Q3, according to a Wednesday (Oct 19) report by Savills Research.

The research arm of property consultancy Savills Singapore maintained their forecast for Grade A CBD office rent to grow at 3 per cent for the whole of 2022, but also predicted that rents will increase by 2 per cent year on year in 2023. 

Based on figures provided by the firm, Grade A CBD office rents rose 1.4 per cent year on year in Q3 – the highest growth in a quarter since Q4 2019, when rents expanded 2.9 per cent year on year. 

On a quarter-on-quarter basis, rents increased 0.3 per cent to S$9.50 psf. This is marginally lower than the previous quarter, which saw a 0.4 per cent increase quarter on quarter. It is also the third consecutive quarter of increase in monthly rents. 

Notably, Marina Bay – among the seven submarkets tracked by the research team – experienced the sharpest quarter-on-quarter rent growth at 1.1 per cent to S$12.31 psf. This is a peak in growth since Q1 2019, when rents rose by 3.7 per cent. 

This was followed by Beach Road/Middle Road and Raffles Place, with rents inching up 0.6 per cent to S$7.78 psf and 0.3 per cent to S$9.68 psf, respectively, from the previous quarter. 

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Meanwhile, vacancy rates of CBD Grade A offices tracked by Savills contracted for the second consecutive quarter in Q3 and at a faster pace – with a jump of 1.2 percentage points to 5.6 per cent, as compared to an increase of 0.4 percentage points in Q2. 

This is due to a higher demand for CBD Grade A offices, said Savills. Net demand for these office spaces increased to 417,000 sq ft this quarter, bringing the net take-up of office space to 612,000 sq ft for the first three quarters of 2022. 

Savills believes that this is expected amid inflationary pressures, higher interest rates and ongoing geopolitical tensions.

“The amount of office space (these companies) signed on were relatively long term in nature,” explained Savills. “Coupled with the relatively low supply of Grade A CBD space, vacancy rates are expected to remain low and rangebound for the rest of this year and into much of 2023 as well.”

The firm’s executive director of research Alan Cheong added that even as global economic conditions sour, landlords of Grade A CBD offices can still pass on higher conservancy charges by raising rents, due to the limited supply of such office spaces. 

“Our research found that had there been no war in Ukraine, no supply chain disruptions arising from that, and hence no change in the interest rate regime, Grade A CBD rents in 2023 could have risen by 11.1 per cent year on year. For 2022, the overall rental increase would have been 4 per cent,” said Cheong. 

“In fact, based on a replay of how the office market performed in the last decade, rents would have started accelerating from Q3 2022 until the end of 2023.”