Median Rents Cbd Down 08 Q O Q 3Q2024
The office rental market in Singapore saw a slight decline in the third quarter of 2024, following a strong rebound in the previous quarter. According to CBRE, the URA office rental index (Central Region) experienced a 3.1% increase in the second quarter, but this was followed by a 0.5% drop this quarter, indicating a volatility in rental rates since the first quarter of 2024.
As a result of the dip in rent, the year-to-date increase in office rents has decreased to 0.8% for the period from 1Q to 3Q2024, down from 1.3% in the previous quarter. Tricia Song, CBRE’s Head of Research for Southeast Asia, notes that the prime CBD office space, particularly Category 1 office buildings, has shown signs of weakness.
Median rents have declined by 0.8% quarter-on-quarter in 3Q2024, after a significant 4.0% increase in 2Q2024, based on contracts signed. According to CBRE Research, this softness can be attributed to a recent surge in supply, notably the completion of IOI Central Boulevard Towers, which added 1.2 million sq ft of prime office space in the CBD. This has led to a rise in Category 1 office vacancy to 10.3% in 3Q2024, up from 7.5% at the end of 2023.
However, Cushman & Wakefield (C&W) notes that the shadow stock in the CBD Grade A office space remains low, at pre-pandemic levels of about 0.2 million sq ft in 3Q2024, down from the previous peak of 0.3 million sq ft in 2Q2023.
According to CBRE’s Song, the lease renewals have been the main driver of the office rental market as occupiers adopt a cost-conscious approach amidst high interest rates and a capital-intensive environment. However, she adds that there has been an increase in relocation activities as well.
Some landlords, facing a larger amount of available space, have prioritized occupancy over securing high rents, contributing to the overall decline in rents in 3Q2024, notes CBRE. Song adds that despite these trends, the office sector remains divided into two tiers.
She explains that the competition for premium spaces in the best buildings remains strong, especially for high floors with unobstructed views and lift lobby frontage. In such cases, tenants are willing to pay a premium over and above the typical Grade A average rent. CBRE has observed a significant trend of businesses in the legal, emerging tech, and professional services sectors relocating to high-quality buildings in prime city center locations.
Wong Xian Yang, Head of Research for Singapore and Southeast Asia at C&W, notes that the office market continues to undergo some degree of right-sizing as companies adjust their real estate footprint. Some have reduced their spatial requirements, while others have moved to better quality and centrally located offices.
Central Region office net demand turned negative, dropping by 0.2 million sq ft in the first three quarters of 2024, reversing the positive 0.6 million sq ft over the same period last year. However, net demand in the Downtown Core remained positive at 0.5 million sq ft, about half of the one million sq ft registered over the same period last year.
According to Wong, office demand has been skewed towards smaller users, given the absence of large occupiers and large leasing deals due to constraints in capital expenditure. Landlords are increasingly offering fitted-out solutions to make their vacant office spaces more marketable. Wong also notes that the rise in secondary office space has created opportunities for occupiers on the flight to quality.
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. While the market is going through a relatively soft patch, there are several upcoming catalysts that could escalate demand and rental growth, says Wong. He expects most landlords to hold on to 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 is expected to pick up towards 2025, fueled by interest from emerging tech industries, wealth management firms, and professional services companies, says Wong. Demand for offices in the Central Region is also expected to be supported by a tight labor market and high office attendance, driven by a return-to-office mandate.
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Furthermore, the postponement of Shaw Tower’s completion from 2025 to 2026 will tighten the supply next year, with the only significant new supply expected to come from the completion of Keppel South Central (0.6 million sq ft). With the expected tightening of supply and improvement in demand due to lower interest rates, Central Region office rents could see more robust growth in 2025, says Wong. He advises occupiers to take advantage of the current opportunities before market optimism picks up.
In terms of pricing, Central Region office prices saw a 0.6% increase quarter-on-quarter in 3Q2024, marking the second consecutive quarter of growth. This was driven mainly by a 47% increase 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.