URA index for central region offices up 13.1%.

The Urban Redevelopment Authority’s office rental index (URA), for Singapore’s central region, rose by 0.3 per cent over the prior quarter in the quarter ending 2023.

It was a slower growth than the 5.9% increase in Q3 2023. The index for office rental in 2023 grew by 13,1%, after growing 11,7% in 2022.

URA statistics released on Friday, January 26, also showed that in Q4 of 2023 the price index for central office space fell 5.9 % from the previous period. This contrasted with a quarterly increase of only 0.8 % in Q3 in 2023. In 2023, office space prices declined by 4.2% after dropping 0.1% in 2022.

The net lettable space (NLA) of the office spaces occupied in Q4-2023 increased by approximately 96.900 sq. feet, compared with the increase of about 247.600 in the preceding quarter. The islandwide office space vacancy rate fell to 9.9 % at the close of Q4 from 10. % at the close of Q3 2023.

Property researcher, said that while overall statistics indicate a healthy Singaporean Office Market with tight vacancy it also points out to a slower demand and a moderation in rental growth.

Reseacher also noted an increasing gap between the expectations of tenants and landlords. Landlords continue to expect higher rental rates, but tenants are becoming more resistant. However, as primary and secondary spaces are brought to the market in the coming months, landlords may lose some of their market power. This could put more pressure on rental and occupancy rates.

Property agencies are expecting the URA’s office rent index in central region to slow down to between 3% and 5% for 2024.

The company forecasts a moderate increase of between 1 and 3 per cent this year for the average gross effective rental value of the CBD Grade-A office basket, following a rise of 4 to 5 per cent last year.

Property analysts noted that many office occupiers would be cautious about expansion. However, 2024 was marked by headlines relating to retrenchments in technology. The projected slight increase in rents in 2024 is due, despite an influx of supply in the market, to the fact that most buildings are currently occupied.

The URA’s Central Region Office Rent index showed an increase of 13.1% in 2023. This was mainly due to the fact that the majority of this growth occurred in the first third of the year. This was significantly higher than rental increases for CBD grade A office baskets reported by most property consultants.

One analyst believes that the URA Office Rental Indexes could be computed on the basis of the commencement date for the lease. While property consultants may record the rents when the lease is signed, this would be earlier. For 2022-2023, the talk of layoffs was not as loud compared to H2 2023. What this could mean in the future is that, in 2024, URA’s office rental index might start to stabilise and even fall slightly as leases contract in 2019 mature into 2025.

The rental prices of Grade A CBD Offices are expected to drop by 2 to 3 % this year. They rose 1.1 % last year and 2.2 % in 2022. Cheong says that Singapore’s high operating costs are one of the factors. Coupled to challenging business conditions that could lead to companies reducing headcounts, and their office footprint to save on costs.

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URA data shows islandwide office demand (measured by the change to occupied office space) nearly doubled between 2022 and 2023. This was boosted by strong demand coming from the Downtown Core.

Analysts note that URA’s median rent per month (based on the date of contract) for category 1 offices (covering buildings with higher quality in the city) increased 7.2 percent for 2023. It was S$11.52 (per square foot), which is 6 per cent more than Category 2 (which comprises the remaining office space) at S$6.04 (per square foot). The vacancy for Category 1, offices, has decreased to 7.5 percent as of end-2023.

There is a flight to the quality as office occupants search for more quality space that’s located better.

The central region’s office rents are likely to continue to decrease as supply and the demand rebalance in light of the high interest rates, and the increased supply. IOI Central Boulevard Towers Labrador Tower Paya Lebar Green are all scheduled to be finished in 2024. They will provide about 2.3m sq ft new office stock on top of a build-up potential of secondary space (that is, spaces vacated in current buildings). This new office stock has been committed to until the end of 2023.

In the second half, 2024, there could be a resurgence in the expansion and relocation of offices in the central area. With better economic conditions and more options for the market in this region, capital expenditures may ease. It is possible that the demand for offices will increase. While many office occupants are keeping their footprints the same or have resized them, others are growing more crowded due to an increase in office usage and policies that encourage people to return to work.

Some observers were puzzled by URA’s substantial quarterly drop in its price index for office spaces in Q4 2020. Analysts speculated that the price index fluctuation could be caused by different characteristics of units sold during Q3 as compared with Q4 in last year.


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