Prime grade office rents rise 1.7% qoq, leading to landlord’s market: Knight Frank

PRIME grade office rents in the Raffles Place/Marina Bay precinct rose 5.5 per cent on the year, or 1.7 per cent on the quarter in the fourth quarter of 2022, according to a report published by Knight Frank on Monday (Jan 16).

The figure was higher than the property consultancy group’s earlier projection of between 3 and 5 per cent. Average rental in the area now stands at about S$10.69 per square foot per metre (psf pm).

“Due to the tight supply of new office inventory coupled with steady demand for traditional as well as co-working spaces, the office sector has become a landlord’s market,” said analysts on Monday.

In the fourth quarter of 2022, offices in the Raffles Place/Marina Bay precinct were about 95.5 per cent occupied, while overall Central Business District (CBD) occupancy improved to 94.2 per cent from 93.6 per cent in the quarter before.

Knight Frank said this was likely due to rising demand for office spaces, as business functions resume in a normalising economy post-pandemic.

Although growth is expected to slow in 2023 due to inflation and volatility in the technology sector, demand for office spaces will likely be sustained by businesses shifting business functions from other parts of Asia to Singapore, analysts said. They noted that Singapore is seen as a flight-to-safety destination.

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“International firms poised to gain from the receding pandemic in growth regions, such as South-east Asia, are also looking to set up or expand in the city-state,” they added, “in order to reach the steadily growing middle class in the region.”

Analysts said the proportion of staff working remotely was likely to decline, from an expected average of 20 per cent to between 10 and 15 per cent, depending on the nature of each business and individual work functions.

The rising use of office innovations in the CBD also provides occupiers with more options via co-working spaces, as tenants continue to relocate from ageing office buildings, as well as those slated for redevelopment.

Knight Frank estimated rental growth of about 3 per cent for the whole of 2023, barring any further substantial pre-termination or reduction of space from technology companies.