Office space net take-up for year 2022 totals 593,000 sq ft, exceeds previous two years

15 February 2023

Savills Research reports that the increasing vacancy rate across all three gradings (A, AA, AAA) of offices in Q4/2022 led to a fall in the demand of take-up in the quarter. Despite that, the first three quarters of 2022 outweighed it, and saw a net take-up of 593,000 sq ft, more than the previous two years.

After two consecutive quarters of decline, the vacancy rate in Savills basket of CBD Grade A offices inched up slightly by 0.4 of a ppt. Increases in the vacancy rate were observed across all three gradings of offices, particularly for Grade AA buildings, which rose by 0.7 of a percentage point (ppt) quarter-on-quarter (QoQ) to 5.7% in the quarter. Similarly, vacancy rates of Grade AAA and A buildings grew by a moderated 0.3 of a ppt to 4.3% and 6.8% respectively in Q4/2022.

The top two locations that saw the highest quarterly growth in vacancy rates were City Hall from 4.0% in Q3 to 5.8% in Q4 (increase by 1.8ppts), and Marina Bay from 2.4% to 3.9% (1.5 ppts). For City Hall, the increase came from the relocation of SMBC from Centennial Tower to CapitaSpring.

However, the vacancy rate remained unchanged on a year-on-year (YoY) basis, with vacancy rates of Grade AAA and AA buildings rising by 1.0 ppts and 0.8 of a ppt respectively, while that of Grade A buildings contracting by 1.7 ppts.

Although the office leasing market remains tight with the lack of significant new supply, average monthly rents in Savills basket of CBD Grade A offices rose for a fourth consecutive quarter by 0.6% QoQ to S$9.57 psf, a slightly higher rate than the 0.3% in Q3/2022. This increase in rents can be attributed to higher service charges.

As such, office rents rose by 2.2% for the whole of 2022, a reversal from the yearly declines for the past two years when Singapore was largely affected by the Covid-19 pandemic.

By micro-market, rents of CBD Grade A offices in Marina Bay were the most resilient, increasing by 1.7% QoQ. This was the largest quarterly growth across all the micro-markets in Q4/2022. (Please refer to Table 1)

Increases in office rents were also observed in Raffles Place (+0.8%), Shenton Way (+0.7%), Beach Road/Middle Road (+0.6%), City Hall (+0.6%). Office rents in Orchard Road and Tanjong Pagar remained unchanged on a QoQ basis in the quarter.

Three factors, including the need for tenants to move to premium offices to comply with ESG mandates, inflation working its way through the service charge component, and the constant flow of family offices setting up here, may see our basket of offices eke out a 2% YoY increase in 2023.

Alan Cheong, Executive Director of Research at Savills Singapore adds, “The need to comply with ESG mandates alongside inflationary pressures may support rents against the tide of economic concerns.”

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