Office Rents And Prices Recover 31 Q O Q 2Q2024 Pipeline Supply Drop

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Overall office prices in Singapore are showing signs of recovery, with a 3.1% q-o-q increase in the second quarter of 2024, according to a recent report by Colliers Singapore. This marks a reversal of the 1.2% decline seen in the first quarter. Rents also rebounded by 3.1% q-o-q, reversing the 1.7% fall in the first quarter.Marketwide occupancy rates dipped 1.2% q-o-q, dropping from 90.4% in the first quarter to 89.2% in the second quarter. Catherine He, head of research at Colliers Singapore, believes that this price increase can be attributed to several high-value deals that were closed in the last three months.One significant transaction was the sale of a 12,465 sq ft strata floor on the ninth floor of the freehold office development, Solitaire on Cecil. This deal fetched $51.48 million, or $4,130 psf. Additionally, several floors in Suntec City were also sold, with the most expensive transaction being the sale of a 3,078 sq ft unit in Suntec Tower 1 for $11.5 million, or $3,736 psf, on June 20.Read also: Office fit-out costs in Singapore rise to $188 psf, highest in Southeast AsiaColliers’ He also points out the sale of 30 Prinsep Street for $147 million, or about $3,000 psf, as well as Wilmer Place at 50 Armenian Street for $26.5 million, or $3,464 psf. These transactions showcase the strong demand for office assets in Singapore from private investors, who continue to be relatively unaffected by the persistently high interest rate environment.The trend of flight to quality continues, with Grade A office rents growing by 4% q-o-q in the second quarter, rebounding from the 1.3% dip in the first quarter, despite a 2.2% rise in vacancy rates to 10.1%. According to Wong Xian Yang, head of research at Cushman & Wakefield (C&W), this can be attributed to the continued flight to quality trend that has been seen since the start of the year. As more companies opt for smaller but higher-quality spaces, landlords have been able to push for higher rents.Wong also notes that, due to capital expenditure constraints caused by macroeconomic conditions, large occupiers have been choosing to renew their leases rather than relocate, further enabling landlords to raise rents. In the face of growing investment interest in Southeast Asia from wealth management and tech firms, Wong believes that office demand may pick up in the second half of 2024.Outside the CBD, office rents saw a higher q-o-q recovery of 5.9%. Vacancy rates also rose by 0.8% q-o-q, to 11.1% in the second quarter of 2024, up from 10.3% in the first quarter.According to Tricia Song, head of research at CBRE, the increase in supply in the second quarter can largely be attributed to the multi-billion-dollar commercial development, IOI Central Boulevard Towers. This development offers 1.26 million sq ft of Grade-A office space, a significant injection into the market.Over the next 12 to 18 months, there is expected to be a substantial supply of new office space, including Keppel South Central (0.6 million sq ft) and the redeveloped Shaw Tower (0.4 million sq ft), both of which are on track for completion in 2025. Adding the uncommitted spaces at IOI Central Boulevard Towers, there could still be over 1.5 million sq ft of new quality office space that will be competing for occupiers, according to Chua Yang Liang, JLL head of research and consultancy for Southeast Asia.The office market is also facing the challenge of backfilling spaces that have been vacated by some larger floorplate occupiers as part of their corporate restructuring. These include Meta’s space at South Beach Tower, which is set to expire in September this year, as well as BNP Paribas’s space at Ocean Financial Centre, when their lease ends at the end of this year.The recent rebound in rents is in line with JLL research data, which shows that gross effective rent for Grade A office space in the CBD is still expanding. However, it has slowed down from 1.4% q-o-q in the first quarter to 0.7% q-o-q in the second quarter of 2024. This occurs after two quarters of rental contraction in the first quarter. In the second quarter, CBD Grade-A rents climbed to $11.50 psf per month, still 25% below the historical peak of $15.27 psf per month, which was recorded in the second quarter of 2008.According to JLL’s Chua, the primary challenge facing the Singapore office market is navigating the near-term supply pressures. He believes that these pressures will balance out the increasing rent expectations of landlords in buildings with high occupancy rates, resulting in modest rent growth for the rest of the year. However, Chua also notes that there is an opportunity for asset positioning and enhancement, particularly with older and functionally obsolete stock, which can be rejuvenated and offer potential upside. Additionally, he believes that the rising demand from firms looking to capitalize on the ASEAN growth story, coupled with incentives from urban planners, will further sweeten the deal for office landlords to attract tenants.