In the third quarter of 2024, the gross effective rent for Grade A offices in Singapore’s Central Business District (CBD) stayed unchanged at $11.50 psf per month, based on data from JLL published on Sept 23. This is a drop from the 0.7% q-o-q growth in the second quarter and the 1.4% q-o-q growth in the first quarter.
The rental growth has matched the second consecutive quarter of increasing vacancy rates for Grade A offices in the CBD, reaching 8.3% q-o-q in 3Q2024. The main reason for this rise is the completion of the IOI Central Boulevard Towers (IOICBT). JLL notes that due to this uptick in vacancy, tenants are becoming more resistant to rent increases. If the IOICBT is excluded, the CBD Grade A vacancy rate would have stayed relatively tight, similar to the post-pandemic low of 5.3% in 1Q2024.
However, the global economic slowdown and the ongoing delay in US interest rate cuts have affected demand. Andrew Tangye, head of office leasing and advisory at JLL Singapore, states that net take-up of office space has decreased as companies in Singapore grapple with rising operating costs and exercise caution regarding capital expenditures. In addition, workplace optimization has led to some tenants reducing their office space upon lease expiration.
This environment presents opportunities for occupiers looking to upgrade to better units in high-quality buildings, according to Tangye. “For example, a significant portion of Meta’s former space at South Beach Tower has been re-leased or is currently in advanced negotiations,” he adds. The space has attracted interest from existing tenants in the building as well as tenants relocating from other CBD buildings.
Dr Chua Yang Liang, head of research and consultancy for JLL Southeast Asia, notes that over the past 12 months, small and mid-sized occupiers in growth sectors such as financial services, professional services, and emerging tech industries have primarily driven office demand.
Tangye anticipates overall CBD vacancy rates to remain elevated in the next few quarters as occupiers take time to move into their new offices. However, the availability of stock in some key office clusters remains limited.
The delay in the completion of Shaw Tower from 2025 to 2026 will further exacerbate the scarcity. “Occupiers intending to expand or relocate in 2025 will only have one new building to choose from – Keppel South Central (0.6 million sq ft) in the Shenton Way and Tanjong Pagar sub-market. This limited supply could shift market dynamics back in the landlords’ favor,” Tangye says.
Dr Chua also expects office rent growth to “stay modest” through 2024, ahead of a more robust recovery in 2025 due to better global economic conditions backed by lower interest rates and as companies adapt to new work models and growth strategies.
He also notes that the recent government decision to not award the Jurong Lake District Master Developer site and place the site back on the reserve list has led to a “more constrained outlook” for new office supply across Singapore. If this trend continues, it could lead to tight office supply conditions in the medium term, he adds.
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