Caution and competition stymie rental growth of Singapore’s office market in 2024

/ EdgeProp Singapore |

December 24, 2024 1:27 PM SGT

Grade-A office rents in the CBD could end the year flat, or with a marginal growth of 0.4%, according to market players. (Picture: Samuel Isaac Chua/The Edge Singapore)

Singapore’s office market in 2024 reflected a cost-conscious approach among major corporate tenants, according to industry experts. The completion of new prime and city-fringe office developments also led to a more tempered growth in rental rates.

Desmond Sim, CEO of Edmund Tie, reckons that economic uncertainties this year led many office tenants to adopt a conservative approach to their leasing strategies. “These tenants largely opted to renew their leases and right-size their existing office space in order to manage their real estate costs more effectively,” he says.

According to Jeryl Teoh, co-head of commercial leasing at Cushman & Wakefield (C&W), prolonged high interest rates put on hold some corporates’ leasing plans, contributing to relatively softer office leasing demand in 2024.

CBRE Research data indicates that Grade-A office rents in the CBD are likely to remain stable in 4Q2024, averaging $11.95 psf per month.

Tricia Song, CBRE head of research for Singapore and Southeast Asia, is projecting a modest 0.4% growth in Grade-A office rents for the full year, which is a slower rate compared to the 1.7% growth recorded in 2023.

“The near plateau growth this year reflects tenants’ sensitivity to rent increases as well as their own efforts to manage real estate costs,” says Edmund Tie’s Sim.

IOI Central Boulevard Towers

Supply-side considerations also dampened office rental growth expectations in 2024 as the completion of IOI Central Boulevard Towers and other city-fringe developments like Paya Lebar Green and Labrador Tower fuelled leasing competition in the prime office market, says C&W’s Teoh.

“With the completion of several new commercial developments, tenants are taking the opportunity to right-size [amid a] flight to quality,” says Sim. He points to the newly completed Labrador Tower, which provides tenants with premium office space at the fringe of the CBD.

IOI Central Boulevard Towers, developed by Bursa Malaysia-listed IOI Properties Group, is the most significant new office development in the CBD since Marina One integrated development in 2017. Located at 2 Central Boulevard, IOI Central Boulevard Towers has two office blocks of 16 and 48 storeys, totalling 1.26 million sq ft of Grade-A office space. It also has a seven-storey retail podium with 30,000 sq ft of retail and F&B space.

In a Nov 25 release on its 1Q2025 financial results, IOI Properties reported that IOI Central Boulevard Towers has an occupancy rate of 68%.

The completion of IOI Central Boulevard Towers injected a whooping 1.26 million sq ft of new prime Grade-A office space this year. (Picture: Samuel Isaac Chua/The Edge Singapore)

The influx of prime office space in the CBD has provided tenants with new options, notes CBRE’s Song. That has prompted some landlords to adjust their rental expectations to sustain occupancy rates.

Since the completion of IOI Central Boulevard Towers, prime office vacancy rate in the CBD surged to 7.8% in 2Q2024, double the 3.6% vacancy rate at the start of the year. The 7.8% vacancy rate in the CBD is the highest since 3Q2017, says CBRE.

Most of the 0.64 million sq ft net absorption of CBD Grade-A office space in the first three quarters of 2024 was driven by tenants moving into IOI Central Boulevard Towers, says C&W’s Teoh. He adds that this flight-to-quality trend among occupiers also benefitted Guoco Midtown, a Grade-A office development in Bugis, which saw its occupancy rate rise to 95% in 3Q2024 from 85% at the end of 2023.

Unease over shadow space

According to CBRE, shadow space in the office market has stabilised to a “healthy” level of about 200,000 sq ft as of December 2024. “However, there is concern about the 0.6 million sq ft of lease expiries that will not be renewed in 2025,” says Song.

The issue of shadow space in the office market will likely persist next year, says Edmund Tie’s Sim. “Tenants are becoming increasingly cost conscious and more inclined to sublet excess space to mitigate rising operating costs,” he says.

It also reflects the ongoing trend that corporate tenants are optimising their real estate footprint, particularly as hybrid work models and cost pressures reshape corporate office strategies, says Sim.

However, C&W’s Teoh is more optimistic. He says that islandwide shadow space represents about 0.3% of the total office stock in Singapore today, a significant decline from the peak of 639,000 (1% of office stock) at the end of 2022. Hence, he anticipates the percentage of shadow space to remain low.

Next year’s office market to outperform 2024

With no significant new Grade-A office supply in the pipeline for the next three years, CBRE’s Song reckons market vacancy rate has peaked. Hence, the excess office space should be absorbed in the coming quarters. She expects rents to resume their growth trajectory in 2H2025.

Song is projecting Grade-A office rents to increase by 2% in 2025, on the back of higher GDP growth, continued flight to quality and limited future supply.

“With economic growth expected to accelerate, more companies may gain the confidence to expand their headcount and office space,” says Song. “That said, we remain cautiously optimistic as occupier sentiment remains tentative due to global economic uncertainties, and the fact that higher cost remains, which tend to drive renewals and discourage relocation activity.”

Sim also anticipates office leasing activity will gain momentum in 2025, fuelled by improved business confidence driven by stabilising interest rates and positive economic activity.

Reassessing office space needs

Ongoing workplace trends and higher capital expenditure rates will continue to influence corporate real estate strategies in 2025, says Teoh. “The growing adoption of hybrid work models and the availability of co-working spaces in the CBD have given corporate tenants greater flexibility to optimise and adapt their real estate portfolios.”

The prevalence of hybrid work models encouraged some companies to reassess their office space needs and unlocked the option for some firms to upgrade to higher-quality offices at a comparable or slightly increased budget, says Teoh.

In the near term, corporate tenants will likely explore recalibrating their workplaces by prioritising space efficiency and reducing excess space, says Song. (Picture: Samuel Isaac Chua/The Edge Singapore)

Song shares that CBRE’s Asia-Pacific office occupier survey, published in September, indicates that most corporate tenants anticipate their office demand increasing over the next few years, especially among firms in the technology, media, and telecommunications sectors.

“But this shift could take time as leases are typically signed for three to five years and existing space allocations are fixed. Instead, in the near term, companies can explore recalibrating their workplaces by prioritising space efficiency and reducing excess space,” she says.

According to Edmund Tie, tenant inquiries for office space have primarily focused on smaller units ranging from 10,000 to 15,000 sq ft, with a preference for centrally located offices driven by the availability of new supply.

As a result, smaller occupiers are now dominating the office market — a notable shift from the trend in 2022 and 2023, when leasing deals typically exceeded 100,000 sq ft, observes CBRE’s Song.

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