Amidst tightening vacancy rates, CBD Grade A office rents climbed 2.1% qoq in Q1 2022, higher than 1.7% qoq in the preceding quarter. CBD Grade A vacancy rates tightened to 4.6% in Q1 2022 from 4.9% in Q4 2021. Decentralised office markets continue to recover, albeit at a gradual pace. City Fringe (all grades) and Suburban (all grades) office rents grew by 1.1% and 0.7% qoq respectively in Q1 2022 amidst stable economic conditions. City Fringe office vacancy rates tightened to 5.5% while suburban vacancy rates inched higher to 5.7%.
Figure 1: Grade A CBD Rent & Vacancy Rate
“Singapore’s economic outlook remains stable with GDP growth forecasted at 3%-5% in 2022 amidst a re-opening of the global economy. However, the outlook is clouded by geopolitical developments and the trajectory of the pandemic,” said Wong Xian Yang, Head of Research, Singapore at Cushman & Wakefield. “We anticipate a continued recovery for the decentralised office market, given commercial decentralisation activities, spillover demand from the CBD, and limited new grade A decentralised office supply. Rochester Commons, the only new Grade A decentralised office development this year, has been mostly pre-committed by Sea Group. The next decentralised Grade A office development, Labrador Tower, will only be completed in 2024.”
Figure 2: Grade A CBD Supply Pipeline
Outlook Stays Positive Despite Increasing Downside Risks
The Ukraine conflict is not expected to have a direct impact on the Singapore office market. Singapore has a limited presence in Ukraine and Russia, and it does not import many essential supplies from the region. However, inflationary pressures would remain elevated, due to higher energy prices and supply chain disruptions. Also, lockdowns in China, a key trade partner with Singapore, have exacerbated supply chain disruptions. The confluence of these factors would raise firms operating costs and weigh on office expansion demand.
“The economic uncertainties could slow the rise of interest rates as central banks keep interest rate hikes manageable to balance recession risks and high inflation. A slower increase in interest rates bodes well for economic growth and property demand,” said Mark Lampard, Head of Commercial Leasing, Singapore at Cushman & Wakefield. “Additionally, the reopening of Singapore’s economy remains on track and more people will be returning to the office, boosting occupiers’ confidence to take up more office space. From 29th March, up to 75% of workers will be allowed to return to the office. In all, we are positive on the office outlook given a strong demand for top quality office spaces and a tight supply situation. As such, CBD Grade A office rents are still expected to trend higher at about 5% yoy in 2022.”