Prime office rents growing more slowly, but occupancy levels still healthy: Knight Frank

/ EdgeProp Singapore |

September 30, 2024 7:50 PM SGT

According to Knight Frank, prime grade office rents in the Raffles Place and Marina Bay precinct inched up 0.6% q-o-q in 3Q2024 to reach an average of $11.35 psf per month (Picture: Albert Chua/The Edge Singapore)

According to a research report by Knight Frank, prime grade office rents in the Raffles Place and Marina Bay precinct inched up 0.6% q-o-q in 3Q2024 to reach an average of $11.35 psf per month. This is marginally slower than the 0.7% q-o-q expansion recorded in 2Q2024.

The latest quarterly figure brings prime office rental growth for the first nine months of 2024 to 2%, below the 3.4% growth logged across the same period last year.

The slower rents come amid an absence of expansions from large occupiers such as tech companies. Calvin Yeo, managing director of occupier strategy and solutions at Knight Frank Singapore, highlights that tech companies are continuing to put expansion plans on hold in response to a slowdown in the tech sector and an uncertain economic climate.

Instead, multiple tech firms have opted to downsize their office footprint. A recent example includes Facebook's parent company, Meta. Following global layoffs, the tech giant chose not to renew its lease for seven floors at South Beach Tower, which expired in September. Staff working at the 34-storey tower on Beach Road were relocated to Meta’s offices at Marina One.

At the same time, some occupiers are electing to reduce their footprint or relocate to smaller, better-quality spaces in response to flexible work arrangements. “Office users are creatively increasing the quality and experience of the workplace post-pandemic while at the same time using less space,” Yeo says.

Nonetheless, Knight Frank’s Yeo notes that the majority of occupiers in the market are choosing to stay put and renew their office lease upon expiry. Landlords are also becoming more negotiable as they seek to retain occupancies given the uncertain economic climate, further encouraging lease renewals, he adds.

As a result, occupancy levels in the CBD remain healthy. According to Knight Frank’s data, prime offices in the Raffles Place and Marina Bay precinct had an occupancy level of 93.4% as of September, only slightly lower than the 95% recorded as of 2Q2024 despite new supply following the completion of IOI Central Boulevard Towers. The overall CBD occupancy rate stood at 93.5% as of 3Q2024, compared to 93.6% the previous quarter.

Smaller space occupiers more active

To date, the former Meta space at South Beach Tower has been “broadly” backfilled by smaller occupiers, says Yeo. It reflects a wider trend he’s observed in the market throughout most of the year: while leasing activity among large occupiers has been muted, office space take-up has been bolstered by demand from tenants occupying smaller spaces.

Some of the demand stems from international firms seeking to set up shop in Singapore. These include companies in the investment and wealth management sectors that are drawn to the city-state’s stability, infrastructure, and position as a gateway city. For example, in July, US-based electronic trading company Millennium Advisors opened its Singapore office at Marina Bay Financial Centre Tower 1, marking the firm’s first location in Asia Pacific.

In addition, an increase in the number of single-family offices present in Singapore has contributed to demand. “As of August 2024, it was reported that Singapore had a total of 1,650 single-family offices, an increase from the 1,400 at end-2023,” Yeo states. While such firms typically take up small spaces of less than 5,000 sq ft, the volume has resulted in rising boutique demand in the office leasing market.

On the other hand, both domestic and cross-border leasing activity by larger office occupiers has been subdued. While this is partly due to companies adopting a holding pattern amid the uncertain economic environment, a lack of available large floorplate office space is also impeding movement by occupiers looking to consolidate various business functions under one roof, Yeo notes.

Rents to stay flat in coming months

Yeo expects office market dynamics to stay largely unchanged for the rest of the year. “On the domestic front, the office leasing market is unlikely to witness substantial relocation, except for natural lease expiries by large space users,” he opines. For leases that are expiring in the next 12 to 18 months, Yeo believes some companies may choose to downsize office space due to flexible working.

He expects prime office rents to stay relatively flat, growing about 3% for the entire year. Upcoming office supply includes Labrador Tower along Labrador Villa Road and Pasir Panjang Road with 807,293 sq ft, and Paya Lebar Green on Jalan Afifi with 388,879 sq ft.

However, Yeo notes that interest rate cuts should give a boost to services sectors, including the finance and insurance industries, which will support economic growth. Singapore’s economy is projected to expand between 2% and 3% for 2024.

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office market