Commercial office prices fall 5.9% in 4Q2023, due to asset repricing pressure

URA released its quarterly report on 25 January, which showed that Singapore’s office market ended 2023 in a muted manner. Commercial office prices fell by 5.9% quarter-on-quarter in the 4Q2023, which reversed the 0.8% quarterly increase seen in 3Q2023. The office price decrease for 2023 was a net 4.2%.

JLL started noticing a decrease in occupier demand by 2Q2023. Head of research at JLL Singapore. In the face of a bleak economic outlook for the world and Singapore at the start the year, and a higher interest rate environment that would last longer, occupiers were wary. Many corporations had to cancel expansion and relocation plans in order to reduce costs.

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The sharp 5.9% drop in the URA index of office property prices in 4Q2023, following three quarters of mediocre growth, is not unexpected. It’s due to the huge asset repricing pressure which has been built up as a result the negative spread between borrowing costs and yields for most office properties in an elevated interest rate environment.


Tricia song, CBRE’s head of Singapore and Southeast Asia research, notes that the Central Region’s office rents increased by just 0.3% during the 4Q2023, marking the lowest growth quarter for 2023. This follows a 4.9% increase qoq in 3Q2023. The office rents in Singapore and Southeast Asia increased by 13.1% over the course of the year 2023. That was a faster increase than the 11.7% in 2022.


Song says some occupants chose to renew existing leases, at higher reversionary rates, rather than relocate, due to higher capital expenditures and interest rate. She also says that due to the limited supply, space availability is still “extremely tight”.


Song notes that competition among tenants for the best-specified premium office space in the Core CBD also led to an increase in rent. She points out that shadow offices in prime areas like Marina Bay and Raffles Place were attractive to tenants seeking high-quality office space.


Song says that some shadow spaces have been taken off the market by tech occupiers who decided to keep their office space, contributing to the current shortage. URA data shows that the market has seen a positive net absorbtion of 0.1M sqft due to the lack supply. This is after the 0.25M sqft increase in 3Q2023. The islandwide vacancy fell to 9.9% in the 4Q2023, from 10% in the 3Q2023.


CBRE Research reports that CBD core rents (Grade A) grew 1.7% year-on-year, a moderated growth from the 8.3% increase in 2022. CBRE Research notes that the market may experience a slower 1H2024, with a completion pipeline above historical average in 2024. Secondary spaces could also be available temporarily.


The soft occupant sentiment is likely to persist, especially after the layoffs that were announced in the first quarter of this year by companies like, Google,, Amazon, Tencent Holdings Riot Games, and Unilever. Experience has shown that demand for office space can rebound quickly when the economy improves.


Singapore’s economic recovery is just beginning, according to the Ministry of Trade’s advanced estimates on Jan 2. The Ministry of Trade reported that 4Q2023 saw a GDP growth of 2,8% yoy compared with a 1.0% yoy in 3Q2023. If this recovery continues into 1H2024, it could boost business confidence in 2H2024 and unleash pent up demand. Occupants that delayed plans for relocation or expansion in 2023 might restart lease negotiations. Office rents may rise and possibly firm up in 2H2024 if this scenario pans out.


CBRE’s Song says that sentiment may improve in 2H2024 due to a reduction in interest rates and inflationary concerns. CBRE Research believes that the flight to quality will continue and that flight to green will also continue. They expect Core CBD (Grade – A) rents to increase at a moderate rate of 2 to 3 percent in 2024.


The Fed’s end-of-cycle rate hikes are causing investors to return to the market. The sale of VisionCrest Commercial, Orchard, to the consortium comprised of TE Capital Partners LaSalle Investment, and Metro Holdings by November 2023 may pave the road for further office deals in 2H2024, thus supporting the upside in asset values.

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