SINGAPORE (EDGEPROP) - An office report by Colliers for 1Q2022 indicates that the recovery momentum in the Singapore office market is well underway. Premium and Grade-A office rents in the CBD rose for a third consecutive quarter in 1Q2022, increasing 1.5% q-o-q to reach $10.26 psf, supported by healthy leasing demand. This marks the fastest pace of growth since rents rebounded in 3Q2021.

See also: Singapore CBD Grade A office rents chart third consecutive quarter of growth, up 2.3% in 1Q2022

In terms of the CBD micro-markets tracked by Colliers, office buildings in the Raffles Place/New Downtown area, as well as the Shenton Way/Tanjong Pagar area, saw the highest growth in rents, increasing 2.3% q-o-q to reach $11.96 psf.

Premium and Grade-A office buildings in the CBD also continued to see strong leasing demand, with positive net absorption of around 134,000 sq ft in 1Q2022. Meanwhile, the vacancy rate tightened to 3.3%.

Office rents and vacancy, 1Q2022

The healthy leasing demand for the CBD premium and Grade-A office segment is backed by corporates’ preference for newer office buildings with high-quality specifications, in preparation for employees returning to the office and the expected pick-up in business activity.

Leasing transactions during 1Q2022 included fashion retailer Shein taking up 21,000 sq ft at Marina Bay Financial Centre Tower 3. German chemical company BASF will be relocating from its existing premises at Suntec Tower 1 to the upcoming Guoco Midtown.

The segment is expected to continue growing in the coming months, supported by a broad-based economic recovery and return-to-office momentum. Colliers anticipates rents for CBD premium and Grade-A offices to grow by 4% to 5% in 2022.

Meanwhile, on the investment front, average capital values in the segment increased 5.6% q-o-q in 1Q2022, hitting $2,850 psf. Correspondingly, net yields compressed by 0.1% q-o-q to 3.4%, with cap rates coming in between 3% and 3.6% in the last quarter.

Moving forward, Colliers expects office assets in prime locations to continue attracting a wide range of capital, underpinned by a healthy leasing market outlook, limited new supply, and the reopening of Singapore’s borders.

Colliers recommends occupiers take early action on future office decisions, as the market shifts in favour of landlords. Landlords of office assets with outdated specifications should consider repurposing or redeveloping their assets, to future-proof them.

On the back of tight yields and interest rate uncertainties, investors are advised to focus on active asset management or enhancement to achieve return targets.

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