Savills Research reports a Year-on-Year (YoY) basis, office rents were 1.4% higher, the highest yearly growth in a quarter since Q4/2019 when rents of Grade A CBD offices expanded 2.9% YoY. On a Quarter-on-Quarter (QoQ) basis, the increase is 0.3% in average monthly rents of Savills basket of CBD Grade A offices to S$9.50 psf. This is the third consecutive quarter of increase in monthly rents.
Out of the micro-market Grade A CBD Offices that registered QoQ growth in rent, Marina Bay registered the largest increase of 1.1% in rent, the highest since Q1/2019 when rents rose by 3.7%. This was followed by Beach Road/Middle Road and Raffles Place, with office rents growing 0.6% and 0.3% QoQ respectively. (Please refer to Table 1)
Net demand for CBD Grade A offices increased to 417,000 sq ft in the quarter, leading to a total net take-up of 612,000 sq ft for the first three quarters of the year. Based on the basket of CBD Grade A offices tracked by Savills, the vacancy rate contracted further for the second consecutive quarter by a larger 1.2 ppts QoQ to 5.6% in Q3/2022, as compared to the 0.4 of a ppt in Q2/2022.
Rising conservancy charges and the need for future capital expenditure related to environmental, social and governance (ESG) matters will lead landlords pass these increases to tenants.
Alan Cheong, Executive Director of Research at Savills Singapore adds, “Whilst global economic conditions are souring, Grade A landlords may still be able to pass on higher conservancy charges by raising rents as new supply of Grade A CBS office supply in 2022 and 2023 is limited.”
Savills Research rental projection for 2022 remains at 3% year-on-year (YoY) with 2023 rents expected to increase by 2% YoY. 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 rent in 2023 could have risen YoY by 11.1%. For 2022, the overall rental increase would have been 4%. 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.
Savills Research provides in-depth analysis of property market trends, forecasts from our professional research team and market commentary to help you make the right property decisions. Please find the Office Briefing for Q3 2022 here, for your reference.