Singapore office rental rates are expected to see downward pressure this year, as economic uncertainties and lower demand weigh on the market. In an office research report released on Jan 23, Savills Singapore says office leasing activity is expected to stay quiet in 1Q2024, as layoffs continue to impact tech and social media companies which were previously a large driver of demand.

“Overall, we expect uncertain economic and geopolitical conditions continuing to weigh down the market over the next couple of quarters with an uptick of ‘shadow space’ contributing to downward pressure,” says Ashley Swan, executive director, commercial, at Savills Singapore.

The office market closed on a more muted note last year, with rental rates growing 1.1% y-o-y in 2023, slower than the 2.2% growth recorded in 2022. The vacancy rate for CBD Grade-A offices rose 1.1 percentage points in 2023, based on data compiled by Savills.

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For 2024 onwards, office vacancy rates are expected to further increase with the introduction of new supply, including the completion of IOI Central Boulevard Towers in 1H2024 which will add 1.26 million sq ft of net lettable area (NLA) to the market.

Nonetheless, Savills believes that the market remains tight with several major leases set to expire in 2025, which will boost leasing activity in the later months of this year as occupiers seek better rates, right-size or move to another building. In addition, downward pressure on rents should be tempered by the fact almost half of the NLA at IOI Central Boulevard Towers has been pre-committed, Savills notes.

As such, the office market should “hold up reasonably well” in 2024, especially for sub-grade AAA buildings in the CBD, says Alan Cheong, Savills Singapore’s executive director for research and consultancy. He anticipates Grade-A CBD office rents to adjust downwards by 2%-3% y-o-y this year.