Office Space Market Singapore Third Quarter of 2023
Commercial & Industrial Properties Singapore - Sales & Rental
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Commercial Office Market Singapore 3rd Quarter of 2023
Demand for Office Space Singapore
As of the third quarter of 2023, the demand for office spaces in the Central Business District (CBD) is mainly driven by financial and professional service sectors. These sectors, including finance, legal, and asset management, accounted for 58% of new leases, a significant increase from the 26% recorded for the entire year of 2022. Despite global economic uncertainties and geopolitical tensions, Singapore is seen as an attractive destination, especially for becoming a regional wealth hub. This attractiveness has led to increased demand for office spaces from businesses in asset management, financial services, and legal sectors. While the overall demand from the technology sector has slowed, there are still some tech companies looking to expand their presence in Singapore.
Interestingly, the vacancy rates in the central area dropped to 10.2% in Q3, the lowest in 2.5 years. This decline is attributed to a notable increase in net demand for CBD office spaces, reaching 398,264 square feet in Q3, the most substantial growth since Q1 2020.
However, it's observed that the high-interest rate environment might be causing institutional investors to hesitate from making significant purchases. During the quarter, there were no notable office transactions, as many investors are adopting a cautious "wait-and-see" approach until the market undergoes a repricing.
Supply for Office Space Singapore
There's a limited amount of office space available in the Central Business District (CBD) until next year, and many businesses are choosing to renew their rental contracts because it's more cost-effective than moving to a new location.
For the high-quality Grade A offices in downtown and Orchard areas, the average rent per square foot per month increased from S$11.44 in Q2 to S$12.31 in Q3. These are usually modern or recently renovated offices with larger spaces that command higher rents.
For other office spaces in Singapore (Category 2), the average rent slightly decreased from S$6.25 per square foot per month in Q2 to S$6.24 in Q3, according to the Urban Redevelopment Authority (URA).
By the end of Q3, the total office space available across the island was about 1,097,000 square meters, higher than the 927,000 square meters at the end of Q2. More office space is expected to be available in 2024 with the completion of IOI Central Boulevard Towers and Keppel South Central, adding around 1.9 million square feet of new office space to the CBD. This could lead to increased competition among businesses for office rentals.
Office Space Rental Situation
The cost of renting office spaces in the central part of Singapore continued to increase in the third quarter of 2023. According to data from the Urban Redevelopment Authority (URA), the available office space decreased by 42,000 square meters, contributing to a 4.9% rise in office rents during Q3. This increase was higher than the previous quarter's 2.3%.
The demand for Grade A offices, which are high-quality and often more modern, might be a key factor in this rent rise. Landlords are maintaining their rental prices due to low vacancy rates and increasing operating costs.
Interestingly, despite economic uncertainties, office rents have remained robust, showing a 12.8% increase in the first nine months of 2023.
Looking ahead, Grade A office rents are expected to grow by 1.5% to 2% for the entire year, surpassing the predicted economic growth but at a slower pace compared to the significant 8.3% rental growth observed in 2022.
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