Prime Office Rents Growing More Slowly Occupancy Levels Still Healthy Knight Frank
As indicated by a recent report by Knight Frank, rents for prime grade office space in the Raffles Place and Marina Bay areas have seen a slight increase of 0.6% quarter-on-quarter in 3Q2024, reaching an average of $11.35 per square foot per month. This is slightly lower compared to the 0.7% growth recorded in the previous quarter, 2Q2024.
The latest quarterly figure brings the total rental growth for the first nine months of 2024 to 2%, which is below the 3.4% growth seen during the same period last year. The slower growth can be attributed to a lack of expansion from large companies, specifically in the tech sector. According to Calvin Yeo, managing director of occupier strategy and solutions at Knight Frank Singapore, the uncertain economic climate and slowdown in the tech sector have caused these companies to put their expansion plans on hold.
Instead, many tech firms are choosing to downsize their office space. One well-known example is Facebook’s parent company, Meta, which did not renew its lease for seven floors at South Beach Tower after a global round of layoffs. Staff from the 34-storey tower on Beach Road were relocated to Meta’s offices at Marina One. Additionally, many companies are also opting to reduce their office footprint or move to smaller, high-quality spaces in response to flexible work arrangements. Yeo notes that this trend of increasing workplace quality while using less space is becoming more common among office users.
Despite the slower rental growth, Yeo points out that the majority of office occupiers are choosing to renew their leases upon expiry, resulting in healthy occupancy levels in the central business district. As of September, prime office occupancy in the Raffles Place and Marina Bay areas stood at 93.4%, only slightly lower than the 95% recorded in the previous quarter, 2Q2024. The overall occupancy rate in the CBD was 93.5% in 3Q2024, compared to 93.6% in the previous quarter, despite the completion of new office supply such as IOI Central Boulevard Towers.
Yeo also notes a trend of smaller companies being more active in the office leasing market. The former Meta space at South Beach Tower has been largely taken up by smaller occupiers, mirroring the market trend for most of the year. While larger occupiers have been less active in terms of leasing, there has been a demand for office space from tenants occupying smaller spaces. This includes international firms looking to set up in Singapore, especially in the investment and wealth management sectors, attracted by the city-state’s stability, infrastructure, and position as a gateway city. For example, US-based electronic trading company Millennium Advisors opened its first APAC office at Marina Bay Financial Centre Tower 1 in July.
Another factor contributing to demand is the increase in the number of single-family offices in Singapore. As of August 2024, there were 1,650 single-family offices in Singapore, up from 1,400 at the end of 2023. Although these firms typically occupy small spaces, usually less than 5,000 square feet, their presence has led to a rise in boutique demand in the office leasing market.
However, both domestic and cross-border leasing activity by larger companies has been subdued. This is partly due to a cautious approach to the uncertain economic environment and a lack of available large floorplate office spaces hindering occupiers looking to consolidate various business functions in one location.
Yeo expects the office market to remain relatively stagnant for the rest of the year. He believes that there will be minimal relocation on the domestic front, except for natural lease expiries by large occupiers. For leases expiring in the next 12 to 18 months, some companies may choose to downsize their office space due to flexible working arrangements. Yeo anticipates a 3% growth in prime office rents for the entire year. The upcoming office supply includes Labrador Tower with 807,293 square feet along Labrador Villa Road and Pasir Panjang Road, as well as Paya Lebar Green on Jalan Afifi with 388,879 square feet.
Despite the current slow rental growth, Yeo remains optimistic about the future. He notes that interest rate cuts should boost the service sectors, including finance and insurance industries, which will contribute to overall economic growth. Singapore’s economy is projected to expand between 2% and 3% in 2024.
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