Q4 2021 Office Property
In the fourth quarter of 2021, amid an improved global and trade outlook, the Singapore economy continued its strong growth. According to advance estimates of Gross Domestic Product (GDP), Singapore’s economy grew by a robust 5.9% year-on-year in Q4 2021, and 2.6% quarter-on-quarter. Based on these estimates from the Ministry of Trade and Industry (MTI), the economy grew by 7.2% for the full year. The economy in 2022 is projected to grow by 3% to 5%. The office property market ended 2021 on a strong note, with several major deals sealed during the quarter. Market observations suggest that demand for office space is expected to remain active, driven by the global economic recovery prompting many businesses to expand, against a backdrop of limited supply of quality office space.
It is expected that rents will grow at a faster pace in 2022, which could further stimulate investor interest in Singapore’s premium office assets and drive up capital values. Economic expansion and Singapore’s commitment to reopening its economy and borders will boost investment and tenant demand in the office market in 2022.
Office Sales Transactions and Prices
• According to the Urban Redevelopment Authority (URA) office price index, office prices fell by 1.8% quarter-on-quarter in Q4 2021, continuing the 2.4% decline from Q3 2021. The price drop was mainly due to a 2.7% quarter-on-quarter contraction in Central Area office prices. For the full year, office prices fell by
5.8%.
• Based on caveats lodged, the total transaction value in Q4 2021 surged to S$2.03 billion from S$241.9 million in Q3 2021. This brought the total sales for 2021 to S$4.79 billion, excluding transactions for which no caveats were lodged. The total transaction value for 2021 has surpassed the previous peak in 2012, which reached S$3.7 billion.
• In Q4 2021, there were a total of 98 sales transactions, a 30.6% increase from the 75 transactions in Q3 2021. For the full year, there were 346 office sales, the highest level since 2014.
• The highlight of Q4 office transactions was the divestment by OGS LLP (a limited liability partnership in which CapitaLand Commercial Trust holds a 50% stake) of the 23-storey Grade A office building at One George Street, which was sold for S$1.28 billion in mid-November to the private company SG OGS. Just a month later, a joint venture between JPMorgan Global Alternatives and Nuveen Real Estate acquired the building from SG OGS for S$1.29 billion. A caveat for the second transaction has not yet been lodged; if included, it would push the total office investment transaction value for the fourth quarter past S$3.3 billion.
• Based on caveats, the second-largest office transaction in the fourth quarter was the sale of 112 Robinson, a 14-storey freehold commercial building at 112 Robinson Road, for S$269.7 million. Based on a Net Lettable Area (NLA) of 92,205 sq ft, the purchase price works out to S$2,925 per sq ft. The buyer is Alpha Eins (SG) Pte Ltd, a subsidiary of the Munich-based family office AM Alpha. The transaction for 112 Robinson is considered the family office’s first direct real estate acquisition in Singapore.
Office Rents and Leasing Trends
• Although year-end activity tends to slow down due to the seasonal lull, the leasing market in Q4 2021 performed
relatively well compared to the same period in previous years.
• The URA office rental index showed a modest 0.9% increase in rents in Q4 2021, reversing the 3.5% decline in Q3 2021. For the full year 2021, office rents rose by 1.9%.
• According to REALIS data, the number of office leasing transactions in Q4 2021 increased by 6.2% quarter-on-quarter to 1,385 contracts. The number of lease contracts grew by 7.9% year-on-year.
• The total lease value contracted slightly by 0.7% quarter-on-quarter to S$27 million in Q4 2021. However, the overall lease value increased by 26.6% year-on-year from S$21.3 million in Q4 2020.
• 2021 was a year of “flight to quality,” with many tenants taking the opportunity to relocate to better-located or higher-spec spaces. With an increasing number of employees working remotely, many office occupants also conducted space rationalization reviews.
• The recovery in rents has been quite strong, supported by the economic recovery and Singapore’s progressive rollout of its vaccination program. Both factors have helped to boost the confidence of businesses and office tenants. Delays in the completion of office supply due to construction disruptions have led to a fairly tight supply, keeping rents firm.
• In 2022, as the global economy normalizes, the demand for office space is likely to be driven mainly by technology and financial institutions, as well as companies expanding their headcount for business growth.
As of January 2022, 50% of the workforce is allowed to return to the office, bringing more vibrancy to office precincts.
• Some leasing trends that may gain attention in 2022 include co-working, offices that allow for flexible space configurations, and offices with green features and high-quality air filtration systems.
Office Vacancy
• The latest URA data shows a slight decrease in the island-wide office vacancy rate. As of Q4 2021, the vacancy rate fell to 12.8% from 12.9% in the previous quarter.
• As of Q4 2021, the island-wide vacant private sector office space decreased from 967,000 sq m in Q3 2021 to 952,000 sq m (net). The majority of the vacant space in the fourth quarter was in the Downtown Core, at 533,000 sq m.
• According to URA data, after a decrease of 5,000 sq m (net) in Q3 2021, the occupied office space decreased by 10,000 sq m (net) in Q4 2021. Meanwhile, the stock of office space decreased by 23,000 sq m (net) in Q4 2021.
• In terms of supply under construction, as of the end of Q4 2021, the total Gross Floor Area (GFA) was 786,000 sq m, compared to 755,000 sq m in Q3 2021.
• In 2022, the limited new office supply (estimated at 78,000 sq m) will help support occupancy rates in the short term. At the same time, leasing demand may rise from tenants relocating from buildings scheduled for redevelopment, such as AXA Tower and Fuji Xerox Towers.
Office Market Outlook
Looking ahead, given the limited supply of new Grade A office buildings and the optimistic economic outlook, AnjiaSG’s senior local real estate agent, Leo Kwek, expects office prices and rents to continue their recovery in 2022.
While the outlook for the office market generally appears bright, there are some downside risks, including upcoming interest rate hikes and rising inflation, the threat of new virus variants, and a potential economic slowdown.
Growth in the office market may also be uneven, with investors and tenants becoming more selective; premium office assets with higher specifications and in prime locations are likely to be more sought after compared to Grade B office spaces
or buildings outside the city center.
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