Net take-up for CBD Grade A office space down 471,000 sq ft in Q1

Its vacancy also increased 7.4% amidst rising economic challenges.

The net take-up for the central business district (CBD) grades A office spaces contracted by 471,000 square feet in the first quarter (Q1) of 2023, with the vacancy rate increasing to 7.4%.

“This is the second straight quarter’s increase for the vacancy, despite the considerable number of leasing inquiries with office sizes mostly in the range of 3,000 to 7,000 sq ft,” Savills said in a statement. 

Quarterly increases in vacancy rates were broad-based by grade. Within Savills’ CBD Grade A basket are subgroups - AAA, AA, and A. Subgroup A buildings saw the greatest rise to 8.9%. Next is Subgroup AA which increased 2.0% to 7.7%. Subgroup AAA offices’ vacancy was 5.5% in Q1 2023.

The top two micro-markets that saw the highest quarterly growth in vacancy rates were Tanjong Pagar, an increase from 6.7% in Q4 2022 to 12.6% in Q1 2023, and Raffles Place, from 6.0% in Q4 2022 to 9.1% in Q1 2023. For Tanjong Pagar, the hike came mainly from the unfilled space in the newly completed Hub Synergy Point.

Other than the City Hall and Orchard Road areas, where the vacancy rates edged down 0.3 and 0.5 of a percentage point (ppt) respectively, other micro-markets (including Marina Bay, Shenton Way, and Beach Road/Middle Road) posted a quarterly vacancy increase from 0.9% to 2.0%.

Savills, however, said the rental spike is tapering off as average monthly rates of CBD Grade A offices edged up 0.2% QoQ to $9.59 psf in Q1 2023, compared to the 0.6% QoQ in Q4 2022. 

Global economic uncertainties and the influx of shadow space caused by impacts on the tech sector and business restructuring have formed obstacles to further rental increases.

“The CBD Grade A office market is at a crossroads, facing several possible paths which it can take for the next decade. Whilst economic challenges continue to increase and the tech sector, which is believed to be the driver of office space demand, faces more funding troubles, rents are still rising, albeit at a pedestrian pace,” said Savills.