Gross effective rent for CBD Grade A offices in 3Q2024 remained unchanged at $11.50 psf per month (pm) in 3Q2024, according to data from JLL published on Sept 23. This follows a 0.7% q-o-q growth in 2Q2024, a slowdown from the 1.4% q-o-q growth in 1Q2024.

The rental growth plateau coincides with a second consecutive quarter of rising vacancy rates for Grade A offices in the CBD, which reached 8.3% q-o-q in 3Q2024. This increase is largely due to the recent completion of the IOI Central Boulevard Towers (IOICBT). JLL notes that occupiers are becoming increasingly resistant to rent hikes amid this uptick in vacancy. Excluding the IOICBT, the CBD Grade A vacancy rate would have remained relatively tight, akin to the post-pandemic low of 5.3% in 1Q2024.

However, the global economic slowdown and the ongoing delay in US interest rate cuts have impacted demand. Andrew Tangye, head of office leasing and advisory at JLL Singapore, notes that net take-up of office space has decreased as companies in Singapore grapple with rising operating costs and exercise caution regarding capital expenditures. In addition, workplace optimisation has led to some tenants reducing their office footprint upon lease expiration.

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The environment offers opportunities for occupiers looking to upgrade to superior units in high-quality buildings, says Tangye. “For example, a significant portion of Meta's former space at South Beach Tower has been re-let or is currently in advanced negotiations,” he adds. The space has attracted interest from existing occupants in the building as well as tenants relocating from other CBD buildings.

Dr Chua Yang Liang, head of research and consultancy for JLL Southeast Asia, highlights that small and mid-sized occupiers in growth sectors such as financial services, professional services, and emerging tech industries have primarily driven office demand over the past 12 months.

Tangye expects overall CBD vacancy rates to remain elevated over the next few quarters as occupiers take time to move into their new offices. However, the actual physical availability of stock in some key office clusters remains limited.

The pushback in Shaw Tower's completion from 2025 to 2026 will further exacerbate scarcity. “Occupiers looking to expand or relocate in 2025 only have one new building to choose from: Keppel South Central (0.6 million sq ft) in the Shenton Way and Tanjong Pagar sub-market. This limited supply could shift market dynamics back in landlords' favour,” Tangye says.

Dr Chua also expects office rent growth to “stay modest” through 2024, ahead of a more robust recovery in 2025 due to improved global economic conditions backed by lower interest rates and companies adapting to new work models and growth strategies.

He adds that the recent government decision to not award the Jurong Lake District Master Developer site and place the site back on the reserve list has led to a “more constrained outlook” for new office supply across Singapore. If this trend persists, it could lead to tight office supply conditions in the medium term, he adds.

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