Central region office rents fell 1.7% q-o-q in 1Q2024, after nine straight quarters of growth. Occupancy rates, however, increased by 0.3% q-o-q to 90.4%, from 90.1% in 4Q2023.
According to Wong Xian Yang, Cushman & Wakefield (C&W) head of research for Singapore and Southeast Asia, the fall in rents can be attributed to the lower-than-expected leasing demand amid economic uncertainty.
The more cautious sentiment among occupiers also prompted some landlords to prioritise increasing occupancy by relaxing rent expectations, says Wong. "Additionally, more competition is on the horizon, with more supply from both primary and secondary markets in 2024."
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1 Refers to office space in buildings located in core business areas in Downtown Core and Orchard Planning Area, which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate sizes and gross floor area.
2 Refers to the remaining office space in Singapore which is not included in “Category 1” (Source: URA)
In Category 1 (a proxy for prime CBD) office, median rents (by contract date) declined 1.3% q-o-q in 1Q2024. Tricia Song, CBRE head of research for Singapore and Southeast Asia, says the fall in rents could have been partly due to large office space leases above 10,000 sq ft.
On the other hand, smaller office spaces below 10,000 sq ft in the Central Area are still seeing an upward trend in median rents, with a quarterly increase of 8% to $12.09 psf per month, notes CBRE. "Most lease renewals are currently transacting at higher rates due to limited supply, elevated interest rates and increased capital expenditure," says Song.
Vacancy rates for offices in the Central Region fell to 9.3% in 1Q2024. Andrew Tangye, JLL Singapore's head of office leasing advisory, says it is "the tightest level in more than seven years". Within the Central Region, the Orchard Planning Area stands out, with the lowest vacancy rate of 7.1% during the quarter.
Tangye attributes the tight vacancy to "robust demand" from consumer goods companies which enjoyed a post-pandemic recovery. Besides companies in the consumer goods sector, leasing enquiries have also increased from professional and financial services companies. "The majority of these enquiries were from small and medium-sized occupiers who preferred newer and better-quality buildings," he observes.
Most office moves over the past quarter have been initiated by workplace transformation, driven by strategic relocations and, most often, flight to quality, as observed by CBRE Research. The trend can be seen in private wealth asset management, insurance and legal sectors. Conversely, those in the banking and technology sectors and agile space operators have adopted a more conservative stance in 1Q2024.
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The next 12 to 24 months will also see a significant office pipeline, with landlords looking to secure tenants for these spaces. New office developments in the CBD coming online in 2024-2025 include IOI Central Boulevard Towers (1.3 million sq ft ), which received its partial temporary occupation permit (TOP) in April 2024. Keppel South Central, which has about 650,000 sq ft premium space, is slated for completion in 4Q2024. The redevelopment of Shaw Tower, with 435,000 sq ft of office space, is scheduled for completion in 2025.
According to JLL, over 1.5 million sq ft of Grade-A office space is still available in these developments. Taking into consideration the office pipeline over the next two years and the challenges posed by the investment-restricting, high interest rate environment, Tangye expects rental growth in 2024 to remain moderate.
The URA office price index fell 1.2% q-o-q in 1Q2024, after a 5.9% drop in the previous quarter. Catherine He, Colliers Singapore's head of research, predicts that prices could face more downward pressure from sellers who need to deleverage or refinance their current office assets. It could lead to an increase in office supply in the secondary market.
Generally, occupiers are still adopting a wait-and-see approach as they manage financial risks by holding back on capital investments and expansion or relocation plans, notes He.
While office demand is expected to remain muted for now, C&W's Wong expects a build-up in pent-up demand, driven by higher office attendance, which could prompt occupiers to relocate or expand. "The market is in a wait-and-see mode,” he says. “But a few large occupier movements may be the catalyst needed, given Singapore's low vacancy rates.”