Apac Premium Stands At 33.7%, Singapore In 7th Place With Premium At 21%
In Savills’ latest quarterly Prime Office Costs report, rents for top prime office space* now average 31.4% over those for Grade A offices in markets across the world, with North America having the highest premium, at 62.5% above Grade A stock.
Gross prime office rents in major cities around the world have risen 3% in the past year (Q2 2023 to Q2 2024) while tenants’ ‘all-in’ net effective costs (rent plus fit-out costs) have risen 3.8%, as the structural trend towards seeking high quality premium office space continues. London (West End), Hong Kong, and New York (Midtown) remain the top three locations of the 35 markets Savills examines, compared to Q1 2024. (see Figure 1)
In Asia Pacific, the prime office rent stands at 33.7%, with Singapore in 7th place at a prime rent of 21%. Rental is lowest in Sydney and Seoul, at 13.5% and 20% respectively. In these markets, offices in high quality downtown buildings are already comparatively higher cost, and prime stock may not differentiate itself enough through sufficient amenities or prestige to warrant high premiums.
In Shenzhen and Beijing, prices exceed 70%, with top-tier offices remaining highly desirable to occupiers, although Savills notes that this high premium may begin to erode as rents have begun to decline in some prime Chinese locations.
In Asia Pacific, net effective costs have remained flat in Q2, at 0%. This is primarily due to several major Chinese markets recording significant cost declines this quarter. Shenzhen has seen the largest decline of -4.4%, as many occupiers in China focus on reducing operational costs, putting downward pressure on rents. Outside of these markets, the region is seeing strong net effective cost growth. Seoul, in particular, is seeing growth of 5.7% this quarter driven by strong demand and limited new supply pipeline. Singapore sees a marginal growth of 0.3% this quarter.
Kelcie Sellers, Associate Director in Savills World Research team, says, “Looking to the second half of 2024, we expect a continued flight to prime spaces. However, increased fit out costs and macroeconomic uncertainty may loom in the background of real estate decisions for the foreseeable future. Landlord concessions are likely to continue to favour tenants in markets where availability remains high, but in supply-constrained markets, we expect concessions to begin dropping and rents to rise.”
Ashley Swan, Executive Director, Commercial, Savills Singapore says, “Despite the continued lack of overall net demand and slow movement in the market, we have seen that prime buildings are still able to command higher rents due to their existing occupancy remaining healthy and occupiers looking to upgrade to a better building when opportunities arise. Superior green credentials have also contributed to prime building’s increased attraction and cost.”
Alan Cheong, Executive Director, Research & Consultancy at Savills Singapore adds, “Singapore’s office market rents continued rising, albeit at a low rate, because of the relative dearth of new supply at the start of the year enhanced landlords’ confidence, and when new supply entered the market in Q2,2024, the holding power of the new building owners were strong and who did not yield to low ball offers. Overall, these twin conditions are likely to tide us through the year with rents ranging from -1% to +1% with the top of class grade offices sporting renting increases.”
