Median Rents Cbd Down 08 Q O Q 3Q2024
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A slight dip was observed in the office rental market in Singapore during the third quarter of 2024, following a strong rebound in the previous quarter. According to CBRE, the URA office rental index (Central Region) had increased by 3.1% in the second quarter of 2024, but saw a decline of 0.5% in the third quarter. This reflects the ongoing volatility in rental rates since the first quarter of 2024.
As a result of this dip in rent, the year-to-date increase in office rents has also decreased to 0.8% for the period from the first quarter to the third quarter of 2024, down from 1.3% in the previous quarter. Tricia Song, CBRE’s head of research for Southeast Asia, explains that the weakness in rent was mainly seen in prime CBD office spaces, particularly Category 1 office buildings.
Based on contracts signed, median rents also decreased by 0.8% quarter-on-quarter in the third quarter of 2024, following a significant 4.0% increase in the second quarter of 2024. This decline can be partly attributed to the recent surge in supply, with the completion of IOI Central Boulevard Towers adding 1.2 million sq ft of prime office space in the CBD. As a result, the vacancy rate for Category 1 offices rose to 10.3% in the third quarter of 2024, 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 0.2 million sq ft in the third quarter of 2024, which is comparable to pre-pandemic levels. This is a decrease from the previous peak of 0.3 million sq ft in the second quarter of 2023.
CBRE Research attributes the softness in the office rental market to the increase in supply, with the completion of IOI Central Boulevard Towers. According to Song, the office market has primarily been driven by lease renewals as occupiers adopt a cost-conscious approach amid high interest rates and a capital-intensive environment. However, there has also been an increase in relocation activities.
Some landlords, facing larger volumes of available space, are prioritizing occupancy over securing market-leading rents, leading to the decline in overall rents in the third quarter of 2024, as noted by CBRE. Song also mentions that the office sector remains two-tiered, with competition for premium spaces in the best buildings remaining strong. In such cases, tenants are willing to pay a premium above the typical Grade A average rent. This trend is especially seen in businesses in the legal, emerging tech, and professional services sectors relocating to high-quality buildings in prime locations in the city center.
Meanwhile, C&W’s head of research for Singapore and SEA Wong Xian Yang notes that the office market is seeing 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 located offices. In response, landlords are increasingly offering fitted-out solutions to increase the marketability of their vacant office spaces.
Occupiers are also taking advantage of the rise in secondary office space, with opportunities for those looking for quality spaces. Wong mentions 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.
However, C&W’s Wong notes that amidst the still-elevated interest rates, the office market is still going through a relatively soft patch. Nonetheless, there are several catalysts on the horizon that could escalate demand and rental growth. He also adds that most landlords are expected to hold on to their asking rents, with most Grade A offices remaining well-occupied. In 2024, CBD Grade A office rents are expected to grow 1% to 2% year-on-year.
The office leasing activity is expected to pick up towards 2025, fueled by interest from emerging tech industries, wealth management firms, and professional services companies, according to Wong. Additionally, the tight labor market and high office attendance, driven by the return-to-office solid mandates, will support demand for offices in the Central Region. Furthermore, with the postponement of Shaw Tower’s completion from 2025 to 2026, the supply is expected to tighten next year, with the only significant new supply coming from the completion of Keppel South Central (0.6 million sq ft). This, along with the improving demand due to lower interest rates, could potentially lead to more robust growth in Central Region office rents in 2025.
In terms of pricing, Central Region office prices increased by 0.6% quarter-on-quarter in the third quarter of 2024, marking the second consecutive quarter of growth. This was mainly driven by the 47% quarter-on-quarter rise in transaction volumes for strata offices in the Central Region, with the sale of office spaces at Tong Building and Solitaire on Cecil.