Prime Office Rental Growth Slows 2Q2024 07 Q O Q Knight Frank
According to Knight Frank Singapore, the rental growth of prime-grade office spaces in Raffles Place and Marina Bay have shown signs of slowing down due to weaker demand and a tepid economic climate. In its June report, the consultancy notes that the average rent for prime offices in these areas increased by only 0.7% q-o-q to reach $11.28 psf per month in the second quarter of 2024. This is a slight increase from the 0.6% q-o-q growth recorded in the previous quarter. The slower growth rate brings the rental growth for the first half of the year to 1.3%, which is lower than the 2.5% growth recorded in the same period last year.
Knight Frank observes that some landlords have started to adjust their rental expectations, especially for buildings with available spaces. This is in response to the prevailing economic uncertainty which has caused businesses to put a hold on expansion plans. Some of these businesses are also exploring more affordable options when their current lease ends.
Occupancy levels have also dipped slightly in the second quarter of 2024, with offices in Raffles Place and Marina Bay registering an occupancy rate of 95%, down from 95.6% in the previous quarter. Overall, the Central Business District (CBD) has seen a decrease in occupancy from 94.7% to 93.6%.
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Knight Frank notes that there are more decanted spaces in the market as companies in the financial and technology sectors consolidate their business functions in a central location. For example, Chinese tech firm Tencent has relocated its staff from its former premises at WeWork at 30 Raffles Place to CapitaSky on Robinson Road. They have also signed a three-year lease for a 28,000 sq ft space at CapitaSky’s flexible office space. Tencent is expected to move its staff currently based at CapitaSpring in Raffles Place to CapitaSky when their lease ends.
Similarly, US tech giant Meta has also started consolidating office space following staff layoffs in 2023. They are letting go of their 115,000 sq ft space at South Beach Tower and relocating their staff to Marina One ahead of the lease expiry in September. Additionally, French bank BNP Paribas is reportedly giving up some of its space at Ocean Financial Centre when their lease ends in December.
Knight Frank predicts that the increasing number of decanted spaces will continue to put pressure on landlords to moderate their rent expectations. In addition, owners of quality office assets are expected to secure long-term tenants to preserve rental income amidst ongoing global uncertainty. On the other hand, occupiers are expected to remain cautious in their capital expenditure and resist substantial increases in rent. As a result, Knight Frank anticipates muted growth in office rental for the rest of the year, with prime-grade office rents remaining relatively unchanged. They estimate that prime-grade office rental growth will range from 1% to 3% for the whole of 2024.