Propnex Q2 2022 Commercial Report

Key Highlights
• Robust transaction activity – the commercial market was abuzz with sales activity, with a number of high-profile commercial buildings being transacted during the quarter.
• Growing rentals – rentals of office space rose by 2.4% QOQ as more workers return to the workplace and as more firms are looking to expand.
•Limited new completions – in 2H 2022, an estimated 431,000 sq ft of office space is expected to be complete – the limited incoming supply will help support prices and rentals of office spaces in the near-term, though the office market may soften in 2023 to 2025 where a large office supply gets completed.

Office Property Q2 2022

Overview
The growth momentum in the Singapore office market persisted in Q2 2022 despite the rising uncertainty over feeble global economic growth and rapidly rising inflation, amid the protracted conflict in Ukraine, China’s zero-Covid stance, and supply chain disruptions. The sustained interest in Singapore office properties was underpinned by
tight office supply and the still healthy economic conditions in the city-state. The government has maintained its 2022 GDP growth forecast at 3% to 5%, with growth likely to be at the lower end of the projected range. In Q2 2022, Singapore’s economy
grew 4.8 per cent year-on-year, according to advance estimates released by the Ministry of Trade and Industry (MTI).
Office leasing demand, particularly for Grade A CBD space remained resilient driven by the tight supply of office space, and expansions as firms position themselves for business recovery with Singapore’s transition to living with Covid-19 and the removal of most pandemic restrictions.

Market Outlook
Office properties, including strata offices, will continue to be sought after by investors, including institutional investors, high net worth individuals and family offices – despite the global economic headwinds and growing interest rates. They will be
buying into an office market that looks on track to grow further this year, riding on active demand from occupiers such as the tech sector, limited completions and post-pandemic recovery optimism.
The back-to-work push will also support space demand as companies review hybrid working arrangements and as more workers head back to the workplace. Occupiers are also expected to favour newer office buildings with good quality specifications to provide a better work environment for workers to entice them back to the office. 

A prominent theme unfolding in the office market is the redevelopment of older buildings in the CBD, which saw office stock being withdrawn from the market, thereby helping to prop up rentals.

Building owners appear to be keen to redevelop ageing office developments into mixed-used assets to seek potential upside to capital values and gross floor area. In a ministerial reply from MND, as at 5 April this year, the URA has received 12
outline applications under the CBD Incentive Scheme, of which 8 have been given in-principle approval. Some developments which have received in-principle approval under the CBD Incentive Scheme include 8 Shenton Way (Forme r AXA Tower), New Port Tower (Former Fuji Xerox Building) and Tower 15 on Hoe Chiang Road.