SINGAPORE (EDGEPROP) - Research by Savills has found that Singapore ranks as the sixth most expensive city for office space, beating other global hubs such as San Francisco, Shanghai and Seoul.

The Savills Prime Office Costs (SPOC) analysis shows that in 4Q2022, Singapore registered a net effective cost to occupiers of US$142.73 ($193.42) psf per annum. This includes annual gross rent (including taxes and services charges) and fit-out costs of $180 psf amortised throughout the lease period. The figure places Singapore sixth out of the 30 markets analysed in the study. It also represents a 1% q-o-q increase in costs from 3Q2022.

London’s West End area topped the list, with a net effective cost to the occupier of US$248.17 psf per annum. Hong Kong came in second at US$245.89 psf, followed by New York’s Midtown area (US$168.13 psf), Tokyo ($US$160.17 psf) and London City (US$158.26 psf).

The study also found that landlord incentives to occupiers have declined globally by 1% over the last year, despite the worsening macroeconomic backdrop. Savills attributes this to occupiers competing for limited high-quality green office space in each market.

Savills adds that the decline in incentives varies significantly across regions and cities. For example, Europe, the Middle East and Africa (EMEA) saw the largest drop in incentives with an annual fall of 5%, while Asia Pacific saw a minimal decline of 0.5%. In contrast, North America has seen an average increase in incentives of 2%, underpinned By San Francisco's push to retain and attract occupiers amid large-scale shifts within the tech industry.

Savills Research forecasts that in 2023, prime offices across the globe are likely to see flat rental growth (such as North America)  to slightly positive rental growth (including Asia Pacific at 1% and EMEA at 2%).

Alan Cheong, executive head of research and consultancy at Savills Singapore, expects Singapore office rents to trend slightly higher than the Apac region. “With the need for tenants to move to premium offices to comply with ESG (environmental, social, and corporate governance) mandates, inflation working its way through the service charge component, and the constant flow of family offices setting up here, we may potentially see our basket of offices eke out a 2% y-o-y increase in 2023.”

Meanwhile, Savills Singapore CEO Marcus Loo observes that the office market rental trend is undergoing a transition. “With macro-economic uncertainties and inflation working its way through the service charge component, the logical deduction is for net rents to turn softer. However, the tight supply of good quality ‘green’ buildings has somewhat buffeted this impact.” Loo adds that Savills remains cautious on the office market amid continued layoffs and occupiers right-sizing.