Prime Office Rents Growing More Slowly Occupancy Levels Still Healthy Knight Frank
According to a recent report by Knight Frank, rental rates for top-tier office spaces in the Raffles Place and Marina Bay areas have risen by 0.6% in the third quarter of 2024, reaching an average of $11.35 per square foot per month. While this is a slight slowdown compared to the 0.7% increase in the previous quarter, it is still a positive sign amidst the current economic climate.
This brings the rental growth for prime office spaces in these areas to 2% for the first nine months of 2024, lower than the 3.4% growth recorded in the same period last year. The slowdown can be attributed to the absence of expansions by large occupiers, especially in the tech industry, who are currently putting their expansion plans on hold due to the industry’s slowdown and uncertain economic conditions.
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Calvin Yeo, managing director of occupier strategy and solutions at Knight Frank Singapore, notes that many tech companies have instead downsized their office spaces or opted for smaller, higher-quality spaces in response to the trend of flexible work arrangements. However, the majority of office occupiers are choosing to renew their leases upon expiration, and landlords are increasingly open to negotiations in order to retain tenants in the current uncertain economic climate.
Despite the completion of new office spaces, the occupancy rate in the central business district remains healthy, with prime offices in Raffles Place and Marina Bay at 93.4% and the overall CBD occupancy rate at 93.5% as of September 2024.
Yeo also observes that while leasing activity among larger occupiers has been muted, there has been demand from smaller occupiers, particularly international firms looking to set up shop in Singapore. This includes companies in the investment and wealth management sectors drawn to the city-state’s stability and infrastructure. The increase in the number of single-family offices present in Singapore has also contributed to demand for smaller office spaces.
On the other hand, leasing activity by larger occupiers, both domestic and cross-border, has been subdued due to the uncertain economic environment and a lack of available large office spaces.
In the coming months, Yeo expects the office market to remain largely unchanged, with office rents likely to stay flat and grow by around 3% for the entire year. New office supply is expected from Labrador Tower and Paya Lebar Green, but Yeo notes that interest rate cuts should help boost economic growth and support the services sectors, including finance and insurance, leading to potential future rental growth.