‘Cautious optimism’ in Singapore’s office market in 4Q2024: Colliers

Colliers say rental growth in 2025 is expected to stay between a range of 0% to 2%, due to projected economic growth for the next two years (Picture: Albert Chua/The Edge Singapore)

The Singapore office market saw a marginal improvement in the last quarter of 2024, according to a January research report by Colliers. In 4Q2024, Core CBD Premium and Grade-A office rents rose by 0.1% q-o-q to $11.68 per sq ft, based on data compiled by the consultancy.

This represents an improved full-year growth of 1.7% for 2024, as compared to a growth of 0.8% in 2023. Vacancy also saw a marginal decrease in 4Q2024 to 5.2% from 5.9% previously, due to the gradual absorption of the new CBD office supply, adds Colliers.

That said, certain buildings within the CBD have seen a sharp increase in vacancy. According to the report, this came on the back of cost efficiencies and a flight to quality, but a downturn is not expected due to the calibrated supply of office spaces.

“As corporate occupiers continue to calibrate the optimal strategy for their real estate requirements, landlords' flexibility and adaptability in meeting these demands will be crucial in helping the Singapore office market weather uncertainties in the short to medium term,” says Tridiana Ong, Colliers Singapore’s executive director and head of office services.

Looking ahead, rental growth in 2025 is expected to stay between a range of 0% to 2%, due to projected economic growth for the next two years, which is forecast to moderate to between 1% to 3%, compared to the 4% growth in 2024.

Pre-commitment to the upcoming supply of office spaces has been dampened following uncertainties, which has negatively impacted expansion or relocation plans. Several companies, particularly those in trade-related sectors, remain “cautious” about their headcount and office footprint, the report found.

However, Colliers forecasts that rising geopolitical changes could result in Singapore benefitting from spillover due to the relocation of some firms.

In addition, easing interest rates could also alleviate financial pressures on certain companies, while the current return to office momentum could lead to higher office attendance and demand for space.

Meanwhile, average capital values for core CBD premium and Grade A offices remained flat in 4Q2024 at $3,050 psf, according to Colliers. With rents increasing by 0.1%, net yields rose slightly to 3.6%.

Catherine He, Colliers Singapore’s head of research, believes higher long-term yields due to higher risks and inflation expectations will keep spreads thin in the office sector. She adds: “In this environment, limited cap rate compression means value creation will mainly be driven by rental growth, highlighting the need for owners and investors to execute well operationally.”