Singapore ranks 5th highest increase QoQ and 6th highest in Q2.
Savills latest Global Prime Office Costs (SPOC) analysis has revealed that net effective cost* for occupiers taking top quality office space in key cities around the world rose 0.3% in Q2, following a rise of 1.1% in Q1.
Across the SPOC markets monitored, Ho Chi Minh City is reported to have the largest proportional increase in Q2 with net effective cost rising 4.6% as economic growth has increased occupier demand, and fit-out cost has also risen. This is followed by Paris with a growth of 3.7% and Dubai by 2.7%. While in New York, one of the office markets frequently examined in the media, net effective prime office costs in the Downtown area rose 0.9% on the previous quarter and in Midtown they were up 1.6%.
Singapore experienced a 1.4% QoQ increase, ranking it the 5th highest in growth. With high-costs of fit outs - an increase of 20% as compared to the 2019 days - and the increase of rental lease terms from the 3-year tenure to the 5-to-7-year term, rents of Singapore’s CBD Grade A offices are still on an upward trajectory. There is also an increasing trend of tenants opting for lease renewals instead of relocating or expanding. Additionally, with no appetite to incur capital expenditure for fit outs, many tenants are choosing to stay in their current premises.
Another reason for increased rents in Singapore is due to the lack of supply of offices. With the slowdown of new supply coupled with the increased need for buildings to be Green Mark certified by Singapore’s Building and Construction Authority, the pool of Grade A offices has not increased significantly.
Alan Cheong, Executive Director, Savills Research & Consultancy: “At the global level, whilst the overall occupational cost for offices has tapered, for Singapore, the issue is slightly different. Owing to a relative lack of new supply and that tenants having signed on long leases, Grade A CBD office rents in Q2/2023 still eked out a 0.5% QoQ increase.”
Marcus Loo, CEO, Savills Singapore: “Owing to the challenging business environment, it is safe to say that demand for office space has slowed down significantly. Coupled with high construction cost, occupiers in general are renewing their leases. However, there is still movement in the office leasing market especially for those that need to downsize and move to more cost-effective location. Whilst some landlords continue to hold firm to their asking rents, there are others who are taking a more practical approach to boost occupancy by offering incentives to attract tenants and increasing fees to brokers.”
Kelcie Sellers, analyst in Savills World Research team: “The US is often described as a monolith market, with all trends affecting all locations. However, there are a wide variety of effects from different global trends across and between regions and cities, and even within cities themselves depending on the specific buildings and landlords involved. If an owner has a lot of maturing debt on their building and is looking to refinance, they may wish to moderate the amount of concessions offered to tenants – reducing rent free periods for instance – in order to secure the best terms from lenders, which may eventually lead to net effective costs for occupiers rising.”
The West End of London ranks the highest in terms of the Net Effective Cost To Occupier (Annual PSF) at USD$259.88. This is followed by Hong Kong with USD$242.80 and New York (Midtown) with $170.75. London (City) and Tokyo are placed 4th and 5th on the list at USD$167.51 and USD$159.97 respectively. Singapore is ranked 6th on the list with USD$144.25.
The Savills Prime Office Cost (SPOC) Index presents a quarterly snapshot of occupancy costs for prime office space throughout the world, as provided by our expert, local tenant representation professionals and researchers.
See Net Effective Cost to Occupier by Cities table here.
The full report can be viewed online here.
*Net effective costs to occupiers – the cost inclusive of rent, fit-out, and any incentives.