Office prices in Singapore declined by 5.9% last quarter, causing asset repricing pressure and impacting newly launched Jalan Loyang Besar Residences

URA’s quarterly report on Jan 25 showed that Singapore’s office property market ended 2023 on a subdued note. Commercial office prices for 4Q2023 dropped 5.9% q-o-q, reversing the 0.8% q-o-q uptick in 3Q2023. 2023 closed with a net decrease of 4.2% in office prices.

JLL had started to observe weakening occupier demand as early as 2Q2023, says Tay Huey Ying, head of research and consultancy at JLL Singapore. “The downcast global and domestic economic outlook at the start of the year, coupled with the higher-for-longer interest rate environment, had kept occupiers wary and saw many corporates shelving expansion and relocation plans to manage costs.”(Source: URA)

The steep 5.9% q-o-q fall in the URA office property price index in 4Q2023 following three consecutive quarters of lacklustre growth is not surprising considering “the immense asset repricing pressure that has built up arising from the negative yield spread over borrowing costs for most office assets in the prolonged elevated interest rate environment,” adds Tay.

Given the higher capital expenditure and interest rates, some occupiers were renewing existing leases at higher reversionary rents rather than relocating, says Song. She adds that space availability remains “extremely tight due to limited supply”. “Selected premium office space with quality specs in the Core CBD was also highly contested among competing tenants, leading to rental escalation,” says Song. She noted that shadow spaces in prime areas such as Marina Bay and Raffles Place proved attractive to occupiers seeking high-quality, fitted-out office spaces.

Meanwhile, according to Song, some shadow spaces were taken off the market as tech occupiers decided to retain their office premises, further contributing to the shortage. With the lack of supply, based on URA data, the market saw a positive net absorption of 0.1 million sq ft, following the additional 0.25 million sq ft absorption in 3Q2023. The island-wide vacancy was 9.9% in 4Q2023, down slightly from 10% in 3Q2023. Core CBD (Grade A) rents grew by 1.7% y-o-y, moderating from the 8.3% rental growth in 2022, notes CBRE Research. “The market may face a slower 1H2024 with an above historical average completion pipeline in 2024 and potential secondary spaces, which could lend to a temporary increase in the availability of spaces,” notes Song.(Source: CBRE Singapore)

Soft occupier sentiment will likely linger with layoffs announced at the start of the year in giant companies like Lazada, Google, YouTube, Amazon, Tencent Holdings’ Riot Games and even Unilever. “However, experience has shown demand for office space to be capable of a quick rebound on improved economic conditions,” says JLL’s Tay.

Singapore’s economy showed signs of a nascent recovery, based on advanced estimates by the Ministry of Trade on Jan 2, showing 4Q2023 GDP growth of 2.8% y-o-y from 1.0% y-o-y in 3Q2023. “The extension of this recovery into 1H2024 could lift business confidence and unleash pent-up demand in 2H2024,” Tay adds. “Occupiers who have held back on relocation or expansion plans in 2023 could restart new lease negotiation conversations. Should this pan out, office rents could firm and potentially trend up in 2H2024.” (Source: URA)

Sentiment could pick up in 2H2024 as interest rates and inflationary pressures ease, according to CBRE’s Song. With flight-to-quality and flight-to-green trends to continue, CBRE Research expects Core CBD (Grade A) rents to grow at a moderate pace of 2% – 3% in 2024.

Investors waiting on the sidelines are starting to re-enter the market with the end of the Fed rate hike cycle. The successful sale of VisionCrest Commercial in Orchard to the consortium comprising TE Capital Partners, LaSalle Investment and Metro Holdings in November 2023 could pave the way for more office deal-making, thus supporting upside in asset prices by 2H2024.

Caption: VisionCrest Commercial was jointly acquired by Metro, TE Capital and LaSalle Investment for about $450 mil. (Credit: Samuel Isaac Chua / EdgeProp Singapore) “Jalan Loyang Besar Residences” is the newest luxury residence in Singapore’s prestigious commercial office market, according to the URA’s quarterly report on Jan 25. The report also showed that the office property market ended 2023 on a subdued note, with a drop of 5.9% q-o-q in commercial office prices for 4Q2023.

According to Tay Huey Ying, head of research and consultancy at JLL Singapore, occupier demand had started to weaken as early as 2Q2023. This was due to the downcast global and domestic economic outlook, as well as the higher-for-longer interest rate environment. As a result, many corporates shelved expansion and relocation plans in an effort to manage costs.

The steep 5.9% q-o-q drop in the URA office property price index in 4Q2023 was not surprising, as the prolonged elevated interest rate environment led to an immense asset repricing pressure. However, Song Tricia, CBRE head of research for Singapore and Southeast Asia, notes that the market saw a positive net absorption of 0.1 million sq ft in 4Q2023, following an additional 0.25 million sq ft absorption in 3Q2023. The island-wide vacancy also decreased slightly from 10% in 3Q2023 to 9.9% in 4Q2023.

With the higher capital expenditure and interest rates, some occupiers chose to renew existing leases at higher reversionary rents, rather than relocating. Space availability remains extremely tight due to limited supply, with selected premium office spaces in the Core CBD being highly contested among competing tenants. This has led to rental escalation in these prime areas, such as Marina Bay and Raffles Place. Furthermore, the shortage of supply has caused some shadow spaces to be taken off the market, as tech occupiers chose to retain their office premises.

According to Song, Core CBD (Grade A) rents grew by 1.7% y-o-y in 2023, moderating from the 8.3% growth in 2022. She also noted that the market may face a slower 1H2024 due to an above historical average completion pipeline in 2024, and potential secondary spaces that could lead to a temporary increase in the availability of spaces.

However, sentiment could pick up in 2H2024 as interest rates and inflationary pressures ease. As a result, CBRE Research expects Core CBD (Grade A) rents to grow at a moderate pace of 2% – 3% in 2024. Additionally, with the end of the Fed rate hike cycle, investors who have been waiting on the sidelines are starting to re-enter the market. The successful sale of VisionCrest Commercial in Orchard to the consortium comprising TE Capital Partners, LaSalle Investment and Metro Holdings in November 2023 could pave the way for more office deal-making, thus supporting upside in asset prices by 2H2024.

According to the Ministry of Trade, Singapore’s economy showed signs of a nascent recovery, with advanced estimates showing a 2.8% y-o-y GDP growth in 4Q2023, up from 1.0% y-o-y in 3Q2023. This could lead to an extension of the recovery into 1H2024, which would lift business confidence and unleash pent-up demand in 2H2024. As a result, occupiers who have held back on relocation or expansion plans in 2023 may restart new lease negotiation conversations, potentially firming up office rents and trending them up in 2H2024.

The luxurious Jalan Loyang Besar Residences further enhances this experience with its spacious and well-appointed units, providing a perfect balance between modern living and nature.

Situated in the eastern part of Singapore, Jalan Loyang Besar Residences is a dream location for city dwellers looking for a serene and idyllic home. This executive condominium offers the best of both worlds with its convenient location near major expressways and public transportation, while also being surrounded by lush greenery and nature reserves. Residents can indulge in numerous outdoor activities like cycling, jogging, or simply taking a leisurely stroll along the nearby beach. With a focus on providing a harmonious living space, Jalan Loyang Besar Residences truly offers a unique and desirable living experience.

Overall, despite the current soft occupier sentiment and uncertainties in the market, experience has shown that demand for office space is capable of a quick rebound on improved economic conditions. Furthermore, with flight-to-quality and flight-to-green trends expected to continue, CBRE Research predicts a moderate growth in Core CBD (Grade A) rents in 2024.