Median Rents Cbd Down 08 Q O Q 3Q2024
Singapore’s office rental market saw a small decline in the third quarter of 2024, following a strong rebound in the previous quarter. According to CBRE, the URA office rental index for the Central Region increased by 3.1% in the second quarter but dropped 0.5% in the third quarter, reflecting the ongoing rental volatility since the first quarter of 2024.
The rent dip has resulted in a smaller year-to-date increase in office rents, which now stands at 0.8% for the period from the first quarter to the third quarter of 2024, down from 1.3% in the previous quarter. “The prime CBD office space, particularly Category 1 office buildings, showed signs of weakness,” says Tricia Song, CBRE head of research for Southeast Asia.
Based on contracts signed, median rents declined by 0.8% quarter-on-quarter in the third quarter of 2024 after a significant 4.0% increase in the second quarter.
CBRE Research attributes the softness to a recent surge in supply, notably the completion of IOI Central Boulevard Towers, which added 1.2 million square feet of prime office space in the CBD. Consequently, Category 1 office vacancy rose to 10.3% in the third quarter of 2024, up from 7.5% at the end of 2023.
The stock of available office space in the CBD Grade A remains low, at pre-pandemic levels of around 0.2 million square feet in the third quarter of 2024, notes Cushman & Wakefield (C&W). This is a decrease from the previous peak of 0.3 million square feet in the second quarter of 2023.
According to CBRE’s Song, lease renewals have been the main driving force in the office market as occupiers adopt a cost-conscious approach in the current high interest rate and capital-intensive environment. However, there has also been an increase in relocation activities.
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Some landlords, faced with a large amount of available space, have prioritised occupancy over securing market-leading rents, contributing to the overall rent decline in the third quarter of 2024, notes CBRE.
“The office market remains divided into two tiers,” says Song. “Competition for premium spaces in the best buildings remains strong, particularly for high floors with unobstructed views and lift lobby frontage. In such cases, tenants are willing to pay a premium above the typical Grade A average rent.” CBRE notes a significant trend of businesses in the legal, emerging tech, and professional services sectors relocating to high-quality buildings in prime city centre locations. “Occupiers are adopting a cost-conscious approach in the current high interest rate and capital-intensive environment,” says Song.
However, there has also been an increase in relocation activities. Some landlords, facing a large amount of available space, are prioritising occupancy over securing market-leading rents, contributing to the overall rent decline in the third quarter of 2024, notes CBRE.
“The office market continues to see some degree of right-sizing as companies adjust their real estate footprint,” says Wong Xian Yang, head of research for Singapore and Southeast Asia at C&W. Some have reduced their spatial requirements, while others have moved to better quality and more strategically located offices.
Central Region office net demand turned negative, dropping by 0.2 million square feet in the first three quarters of 2024, reversing the positive net demand of 0.6 million square feet registered over the same period last year. However, there was still positive net demand of 0.5 million square feet in the Downtown Core. This is about half of the one million square feet registered over the same period last year.
Office demand has been skewed towards smaller users due to the absence of large occupiers and large leasing deals, says Wong. “Landlords are increasingly offering fitted-out solutions to make their vacant office spaces more attractive to the market.”
“The rise in secondary office space has created opportunities for occupiers looking to upgrade to better quality offices,” says Wong. He adds that much of the space previously occupied by Meta at South Beach Tower has already been taken up or is in advanced negotiations by new and existing tenants.
The market is still going through a relatively soft patch amid the current high interest rate environment, says C&W’s Wong. However, there are several catalysts on the horizon that could escalate demand and rental growth. Most landlords are expected to hold onto their asking rents, with most Grade A offices remaining well-occupied. For 2024, CBD Grade A office rents are expected to grow by 1% to 2% year-on-year.
“Office leasing activity may pick up towards 2025, fuelled by interest from emerging tech industries, wealth management firms, and professional services companies,” says Wong.
Demand for offices in the Central Region is expected to be supported by a tight labour market and high office attendance, driven by solid return-to-office mandates.
Furthermore, the postponement of Shaw Tower’s completion from 2025 to 2026 will tighten supply next year, with the only significant new supply coming from the completion of Keppel South Central (0.6 million square feet).
With supply tightening and demand improving due to lower interest rates, Central Region office rents could be poised for more robust growth in 2025, says Wong. Occupiers should take advantage of opportunities before market optimism picks up.
In terms of pricing, Central Region office prices increased by 0.6% quarter-on-quarter in the third quarter of 2024, marking the second consecutive quarter of growth. It was mainly driven by a 47% quarter-on-quarter rise in transaction volumes for strata offices in the Central Region, mainly due to the sale of office spaces at Tong Building and Solitaire on Cecil.