Singapore Office Market Poised for Another Robust Year in 2022

Following a strong recovery in office demand, reduced vacancies and growth in CBD Grade A office rents in 2021, the Singapore office market is expected to further pick up pace in 2022. According to Cushman & Wakefield’s ‘Singapore Office Market Outlook 2022’ report, the projected economic growth of 3.6% in Singapore coupled with the positive economic outlook globally and regionally bode well for another robust office market this year, barring any unforeseen circumstances.

Wong Xian Yang (黄显洋), Head of Research, Singapore at Cushman & Wakefield - “The Singapore office market bottomed out in 2021 as demand continues to recover amidst a flight to quality. Looking ahead, Singapore’s CBD Grade A office rents are projected to grow by 4.6% year-on-year with vacancy rates tightening to below 4% by end-2022, against a backdrop of projected sustained demand of 0.9 million sq ft (msf) and limited supply of 0.8 msf this year.”

“With anticipated strong rental growth, investors looking to deploy capital into safe haven assets with healthy returns will find the Singapore office market appealing. We may see higher office investment deals done with the Singapore market poised to outperform the broad Asia Pacific market in 2022. As the market continues to recover and with limited stock available for sale, buyers are price-takers. Amidst ample liquidity and keen demand, office capital values are expected to run up and cap rates could compress further, despite rising interest rates. Assuming cap rates tighten to 3.10% in 2022 from 3.15% in 2021, CBD Grade A capital values could increase by over 6% this year,” - Shaun Poh (傅子伟), Executive Director and Head of Capital Markets, Singapore at Cushman & Wakefield.

Technology and financial occupiers will continue to be major sources of office demand in 2022. Singapore is a prominent tech hub globally with 88 of the world’s top 100 technology companies operating in Singapore and 59% of tech multinationals establishing their regional headquarters in Singapore¹.

Mark Lampard, Executive Director and Head of Commercial Leasing, Singapore at Cushman & Wakefield - “As these tech companies grow, their appetite for CBD Grade A office space would expand. However, given limited Grade A spaces within the CBD, some would start exploring city fringe Business Park space, following the likes of Google, Razer and Grab, as they outgrow their current premises. While this could create sizable pockets of space in the CBD over the mid-term, they could be filled by future demand from future tech firms. Singapore has a vibrant start-up scene with over 4,000 tech startups locally and access to a large concentration of startups in Southeast Asia. Given favorable funding conditions and the exponential growth of the digital economy, the number of tech firms is set to grow, providing a steady pipeline of demand for office spaces.”

Crypto companies are another potential source of office demand driven by the booming crypto economy. The global crypto-currency market is expected to reach US$4.9 billion by 2030² and Singapore aims to position itself as a global hub for crypto-related businesses. While office demand for crypto companies in Singapore is relatively small at present, this demand could grow amidst the evolving digital currency landscape.

Financial companies will continue to be a major driver of office demand with more asset managers setting up shop in Singapore. The total assets under management (AUM) managed by Singapore-based asset managers grew to a record S$4.7 trillion as of end-2020, a 17% growth from S$4.0 trillion in 2019³. This is in line with the growth of family offices in Singapore, which has seen a ten-fold increase between 2017 and 2020. 

Based on Cushman & Wakefield’s Experience per SF™ (XSF)⁴ survey, employees in Asia Pacific, including Singapore, generally prefer to work from the office with increased flexibility to work remotely. As more employees return to office, there will be a higher focus on workplace strategy. Office fit-out design is placing a greater emphasis on collaborative spaces and some firms are turning to landlords to provide this type of space and amenities within the building for shared purposes. This is expected to further propel demand for prime offices that can provide a holistic work experience.

Obsolescence risk is expected to accelerate with the higher significance placed on environmental, social and corporate governance (ESG) considerations. On the demand front, more corporate tenants are expected to prioritize green office spaces, especially for multinational tech and financial companies who have shown strong sustainability commitments. Buildings which do not meet sustainability standards will see higher vacancy costs and lower rents as they are deemed less favorable in corporate selection evaluations. As such, a wave of CAPEX spend is expected over the next few years, as building owners and investors “future-proof” their office buildings to meet a sustained flight to quality and higher sustainability standards through redevelopment or asset enhancement works.

Mr. Lampard concluded: “While the outlook for the Singapore office market looks promising, there are potential downside risks such as new Covid-19 variants which could reverse re-opening of economies and faster than expected rise in interest rates which could derail the recovery of the global economy. Notwithstanding these potential downside risks, tenants who are delaying their real estate decision making are advised to fast track their planning to optimize the opportunities available in the office market and ‘catch 22’ before it goes away.”

For Cushman & Wakefield's Asia Pacific outlook, click here to download Catch ‘22: Asia Pacific Commercial Real Estate Outlook 2022.