Singapore Office Rental to Soften -2 To -3 % In 2024 Year-on-year (YoY) With Record Building Completion In 2024 And 2025

Savills Research forecasts office rents softening in 2024 due to the record levels of CBD and non-CBD building completions. The significant reduction in net supply in 2022 had created a tight market situation whose effects could be felt for 2023 and partially into 2024, hence the rental adjustment is expected in 2024 rather than in 2023.

The forecast for CBD Grade A rents is still a 2% YoY change for 2023. However, for 2024, arising from the economic and political flareups, and because of the spike in CBD (Central Boulevard and Keppel South Central) and non-CBD supply (Labrador Tower and Paya Lebar Green), the forecast is a -2% to -3% YoY change, followed by 0% change for 2025. Some landlords may use this time to undertake extensive asset enhancement work for their buildings.

For Q3, the office rental growth has slowed with the average monthly rents of CBD Grade A offices in Savills basket inching up marginally for the seventh consecutive quarter, albeit at a moderated pace of 0.1% QoQ, compared to the 0.7% in Q2/2023,
to S$9.64 psf. For the first three quarters of this year, rents have risen by 1.1%.

For Beach Road/Middle Road, the larger quarter-on-quarter (QoQ) increase in Q3/2023 was largely led by higher rents at Bugis Junction Towers. Rents of Grade A offices in Marina Bay, Tanjong Pagar, City Hall and Orchard Road remained unchanged in the quarter. For Marina Bay, this stagnation in rents came after six consecutive quarters of increase.

The vacancy rate of CBD Grade A offices rose in Q3/2023, unchanged in the previous quarter, increasing 0.6 of a ppt QoQ to 7.1%, the highest since Q1/2022. This was largely led by the inclusion of Guoco Midtown into the office stock, which brought about an increase in vacancy rates of Grade AAA buildings from 5.5% in Q2/2023 to 7.2% in Q3/2023. This was the fourth consecutive quarter of increase.

On the investment sales front, in Q3/2023, office transactions declined further with fewer strata title deals and no block transactions. While there were 11 transactions in Q2/2023, there were only six transactions of strata units totalling S$166.9 million. Out of which, three of the deals were from Suntec City, with transaction prices of S$11.5 million (S$2,850 psf), S$11.6 million (S$3,100 psf) and S$16.5 million (S$2,350 psf) respectively. Apart from that, the third storey of the freehold Nomu at Handy Road was also sold to a Singapore-incorporated entity that is an indirect wholly owned subsidiary of IMC Group Holdings which was founded by the late Frank Tsao of Hong Kong. This was bought over from a company owned by Wong Mun Summ and Richard Hassell, the founders of Woha Architects for nearly S$24.0 million (S$3,790 psf).

Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore: “As business and global political risk levels rise, the sharp drop in new supply in 2025 and 2026 may be not strong enough to convincingly turn rents around. The recent attacks on Israel’s soil and the consequent retaliatory actions may ignite middle east flashpoints, possibly spilling over to the economic realm.”

Ashley Swan, Executive Director, Commercial Leasing, Savills Singapore: “Rental numbers in Q3 2023 support the general feeling that the market has softened despite a lack of new supply throughout the year. The continued economic uncertainty, global tensions and high interest rate environment have led to a host of occupiers delaying expansion plans, sitting tight and adopting a “wait and see” approach. We expect these sentiments to remain through 2024 and contribute further to the slowdown in leasing activity which in turn will lead to a decline in CBD rents in 2024.”

Read the full report here.