Research conducted by Savills has discovered that Singapore is ranked as the sixth most expensive city in terms of workplace space. This is higher than out other cities in the world like San Francisco, Shanghai and Seoul.
The Savills Prime Office Costs (SPOC) analysis has revealed that in the 4Q2022, Singapore registered a net effective cost to tenants in the range of US$142.73 ($193.42) per year. This is a figure that includes the annual gross rent (including taxes and charges for services) as well as fit-out costs of $180 per sq ft, amortized throughout the lease term. This puts Singapore in the top ten among the thirty markets analyzed within the report. The figure also indicates an increase of 1% cost increase q-o-q from the 3Q2022.
The London’s West End area topped the list, having an effective net cost to the owner of US$248.17 per year. This is a psf rate of. Hong Kong came in second with US$245.89 per square foot and was followed by New York’s Midtown region (US$168.13 per square foot), Tokyo ($US$160.17 psf) and London City (US$158.26 psf).
The study also revealed that the incentives offered by landlords to tenants have decreased globally by one% in the past year, despite a worsening macroeconomic conditions. Savills blames this on tenants competing for a limited amount of green office space across each market.
Savills says that the decline in incentives is different between cities and regions. For instance, Europe, the Middle East and Africa (EMEA) experienced the most drastic drop in incentive payments with an annual drop of 5% and Asia Pacific saw a minimal decrease in the range of 0.5%. However, North America has seen an average rise in incentives of 2% which is driven by San Francisco’s effort to retain and draw in new workers amid the massive changes in the technology industry.
Savills Research forecasts that in 2023, prime offices around the globe will have flat rent growth (such for North America) to slightly positive growth in rental (including Asia Pacific at 1% and EMEA at 2%).
Alan Cheong, executive head of research and consulting for Savills Singapore, expects Singapore office rents to be slightly higher than those in the Apac region. “With the requirement for tenants to relocate into premium offices to be in compliance with ESG (environmental and social) as well as corporate governance) requirements, the rise of inflation making through the service cost element, as well as the ongoing increase in family-owned offices that are setting there, we could possibly see our collection of offices achieve two% growth in 2023.”
In the meantime, Savills Singapore CEO Marcus Loo says that the market rental for offices trend is changing. “With economic uncertainty and rising inflation creeping its way through the service charge and the obvious deduction is that net rents will become more into a more softer. However, the limited supply of high-quality green buildings has partially tamped down the impact.” Loo adds that Savills remains cautious about the market for office buildings amid the ongoing cuts and occupiers right-sizing.