Singapore, September 25, 2023 -- CBRE has observed an upturn in the Core CBD (Grade A) office market sentiment, with better-than-expected leasing activity and absorption of shadow space.
Leasing activity in the Core CBD (which consists of Raffles Place, Marina Bay, Marina Centre, and Shenton Way) has picked up among Grade A office buildings, as seen in the positive net absorption of 0.11 million sq. ft.in Q3 2023, compared to a more modest level of net absorption of 0.03 mil sq. ft. in the first half of 2023. Gross effective rents for this market have also increased by 0.4% q-o-q in Q3 2023 to reach S$11.85psf/month, at a similar pace as the last two quarters as vacancy levels decreased to 3.2%, from 4.0% in the previous quarter.
David McKellar, CBRE Co-Head of Office Services, Singapore observed, “More diversified demand drivers has made up for the slack resulting from the slowdown in the tech sector, as we have seen shadow space tapering off. Occupiers in co-working and asset management have been among the various businesses that have taken up chunks of these shadow spaces, seizing the opportunities to move into fitted office spaces in the prime Marina Bay and Raffles Place areas.”
CBRE has observed that the amount of shadow space in Q3 2023 has halved to 0.33 million square feet, from the record high of 0.7 million square feet in Q1 2023.
“Increased office usage has likely also contributed to this heightened demand for space that we are experiencing. Anecdotally, many companies have been mandating that employees return to the office for more days in a week. In addition, despite concerns following WeWork’s recent challenges, other flex office operators in Singapore appear undeterred, and have continued to expand their presence within the CBD”, Mr McKellar added.
Flight to quality and flight to green are other trends that have held steady, as workplace-led changes have encouraged more relocations and adjustments to more efficient footprints. Such demand was seen in especially in the private wealth, asset management, and consumer goods sectors.
Correspondingly, Core CBD (Grade B) rents have deteriorated for the first time after seven consecutive quarters of increase, declining by 0.6% q-o-q in Q3 2023. This points to a widening two-tier market that CBRE has previously alluded to, as older office buildings with less attractive attributes face rental pressures from rising vacancies.
Forecast
Year-to-date, Core CBD (Grade A) rents have increased by 1.3% in 2023. Although near-term risks such as a cautious economic outlook and high interest rates remain, the market has outperformed expectations.
Tricia Song, CBRE Head of Research, Singapore and Southeast Asia observed, “The delayed completion of IOI Central Boulevard Towers to Q1 2024 should keep market vacancy low and maintain landlords’ confidence for the remainder of 2023. The increased supply in 2024 may better match the recovery in demand, along with the more positive economic growth next year”.
CBRE Research expects this momentum to continue through to the end of the year. Core CBD (Grade A) rents could eventually grow by 1.5% - 2.0% for the full year – outpacing projected GDP growth but at a more modest pace compared with 8.3% rental growth in 2022. This resilience reflects Singapore's strong office fundamentals, as it remains relevant and is well placed as a key business hub and gateway city despite the weaker global economic backdrop.
In brief
CBRE reports that Singapore’s Core CBD Grade A office market recorded stronger leasing and positive net absorption in Q3 2023. Net absorption reached 0.11 million sq. ft., while gross effective rents rose 0.4% quarter over quarter to S$11.85 per sq. ft. per month. The company says vacancy fell to 3.2% and the amount of shadow space declined to 0.33 million square feet. Demand included businesses in co-working and asset management, alongside interest in higher-quality and greener offices. In contrast, Grade B rents decreased 0.6% quarter over quarter, which CBRE says reflects pressure on older buildings. The company expects Grade A rents to increase 1.5%–2.0% over the full year, while noting economic and interest-rate risks.
Key takeaways
- Core CBD Grade A rents increased 0.4% quarter over quarter, reaching S$11.85 per sq. ft. per month.
- Q3 net absorption was 0.11 million sq. ft., and vacancy fell to 3.2%, CBRE reports.
- Shadow space declined to 0.33 million square feet from a Q1 2023 high of 0.7 million.
- Grade B rents fell 0.6% quarter over quarter, while CBRE forecasts 1.5%–2.0% full-year growth for Grade A.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2022 revenue). The company has approximately 115,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
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Questions around this news
How did Singapore Core CBD Grade A office rents and vacancy change in Q3 2023?
The release says Core CBD Grade A gross effective rents rose 0.4% quarter over quarter in Q3 2023, reaching S$11.85 per square foot per month. Vacancy declined from 4.0% in the previous quarter to 3.2%. It also reports that rents had increased 1.3% year to date in 2023.
What does the release forecast for Singapore Core CBD Grade A office rents?
CBRE Research expected Core CBD Grade A rents to grow 1.5%–2.0% for the full year, after a 1.3% increase year to date. The release described this as a more modest pace than 2022’s 8.3% rental growth and cited cautious economic conditions and high interest rates as near-term risks.
What is shadow space in the office market?
Shadow space generally refers to office space that a tenant leases but is not using, and may offer to sublease or otherwise make available to other occupiers. It can add to the space available in a market without appearing as vacant space in the building’s primary leasing figures.
What does net absorption measure in an office market?
Net absorption measures the change in occupied office space over a period. It reflects space newly occupied minus space vacated, rather than the total amount of leasing activity. Positive net absorption generally indicates that occupied space increased during the period; negative net absorption indicates a decrease.
