URA Central Region office index rises 13.1% to nearly double islandwide net demand in 2023

The net lettable surface area (NLA), which is the total amount of occupied space, increased in Q4 by about 96.900 square foot (sq. ft). This was down from a previous increase of approximately 247.600 sq. ft. The island-wide vacancy rates for office spaces dropped from 10 percent to 9.9 at the end if Q4 2023.

Even though the overall statistics point to a healthy Singapore office sector with a low vacancy rate, they also show that demand is slowing and rental growth has moderated.

The growing gap in expectations between tenants and landlords. Although landlords expect higher rents from tenants, they are facing increasing resistance in the current economic climate. The market power will shift in the future quarters away from the landlords. As more primary and secondary properties come on the market and put pressure on occupancy rates and rents.

Colliers estimates that URA’s office rent index for the central region will moderate from a growth rate of 3% to 5% per annum by 2024.

After rising by 5.5% in 2012 and 4.1% in 2023, the average gross-effective monthly rental for its CBD grade A office basket is expected to grow between 1 and 3 percent for the full year.

Office occupiers tend to be cautious when it comes to expanding. Retrenchment has been a major headline in 2024. The small increase in rents predicted for 2024, despite an infusion of new supply, is due largely to tight occupancy in most buildings.

A flight for quality persists

As occupants seek better quality and conveniently located office spaces, the flight to high quality will continue.

In the Central Region, the office rents are likely to continue to decline this year. This is because of the high interest rate and the increased supply. IOI Central Boulevard Towers will be adding 2.3m sq ft to the new office stock in 2024. They are also expected to fill up any vacant spaces within existing buildings. He did note that, as of end-2023, about 43 percent had been pre-committed.

Office relocation and growth activities in central regions could increase in second half of 2020, as there will be more choices on the markets and better economic conditions may ease capital expenditure constraints. There could be a pent-up office demand. Some offices are getting more crowded as many people have kept the size of their offices unchanged or even reduced since the pandemic.

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Observers were puzzled by the large drop in URA’s index of office space prices in Q4 2023. The price index fluctuation could be caused by the differences in attributes between units sold during Q3 and those of Q4 of last year.

Different computation

One explanation for the difference could be that URA office rental indexes were calculated based upon the commencement of the lease. Meanwhile, property consultants might be recording rents when the lease is signed, which could be earlier. In 2022-early 2023, layoffs were not as common in the tech sector as they were in H2-2023. It is possible that by 2024 the URA office rent index will start to stabilise, or even slightly decline, as the leases entered into in 2024 begin in 2025.

Savills expects rents to drop 2 to 3 % this year for their Grade A CBD Office Rents Basket. Last year rents rose 1.1 %, up from 2.2 % in 2022. Cheong mentions the high cost of operating in Singapore. Combined with challenging business conditions this could lead to companies reducing headcounts, and reducing the office space footprint in order to save on costs.

URA data shows the net new demand for office space in Singapore, as measured in terms of the change in office space occupied, almost doubled in 2023 to 893.400 sq ft from 473.600 sq ft. This was boosted by strong demand coming from the Downtown Core. (This includes locations such Raffles Place Marina Bay Shenton Way.

Analysts also noted that URA’s monthly median rental (based upon contract date) of Category 1 offices, which cover the higher-quality buildings within the city, rose by 7.2% for the entire year 2023. The increase was greater than the 6.2% rent rise for Category 2 offices, which cover the remainder office space throughout Singapore, at S$6.04/psf. The vacancy for Category 1, offices, has decreased to 7.5% as at the end 2023. This is down from 9.5% at the end-2022.

The Urban Redevelopment Authority’s index of Singapore’s Central Region office rental prices rose 0.3 percentage points in the 4th quarter of 2023, compared with the prior quarter.

This was a lower increase than the gain of 4,9% in Q3-2023. Office rental index rose 13.1% in total for 2023. This was after a growth of 11.7% during 2022.

URA figures released on Friday, January 26, also revealed that the office price index in the central area fell by 5.9 per cent from the prior quarter. This was in contrast to a quarterly increase of only 0.8% for Q3 2023. Office price index fell 4.2 per cent for the entire year 2023 after dropping 0.1 per cent the previous year.


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