Office Rents Plateau 3Q2024 Cbd Vacancy Rate Climbs Second Consecutive Quarter Jll
Published: 23 Sep 2024
There has been no change in the gross effective rent for Grade A offices in the Central Business District (CBD) in the third quarter of 2024, remaining at $11.50 per square foot per month (psf pm), according to JLL’s latest report released on Sept 23. This follows a growth of 0.7% quarter-on-quarter (q-o-q) in 2Q2024, which was a slowdown from the 1.4% q-o-q growth in 1Q2024.
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The rental growth is reflective of the second consecutive quarter of increase in vacancy rates for Grade A offices in the CBD, which has reached 8.3% q-o-q in 3Q2024. This surge in vacancy rates can be attributed to the completion of the IOI Central Boulevard Towers (IOICBT). JLL has also noted that tenants are increasingly resistant to rent hikes due to the rise in vacancies. However, if the IOICBT is excluded, the vacancy rate for Grade A offices in the CBD would have remained low, similar to the post-pandemic low of 5.3% in 1Q2024.
The demand for office spaces has been affected by the global economic slowdown and the delay in US interest rate cuts. According to Andrew Tangye, head of office leasing and advisory at JLL Singapore, the net take-up of office space has declined as companies in Singapore grapple with rising operating costs and exercise caution in terms of capital expenditures. Furthermore, the trend of workplace optimisation has resulted in some tenants reducing their office space upon lease expiration.
Tangye also mentioned that this situation presents opportunities for tenants who are seeking to upgrade to better units in high-quality buildings. He cited the example of Meta’s former space at South Beach Tower, which has been re-let or is in the final stages of negotiation. The space has attracted interest from existing occupants in the building as well as tenants looking to relocate from other CBD buildings.
Dr Chua Yang Liang, head of research and consultancy for JLL Southeast Asia, has pointed out that the demand for office spaces over the past 12 months has been driven by small and medium-sized occupiers in growth sectors such as financial services, professional services, and emerging tech industries.
Tangye predicts that the overall vacancy rates in the CBD will continue to remain high in the coming quarters as tenants take their time to move into their new offices. However, the actual availability of stock in key office clusters remains limited. The delay in the completion of Shaw Tower from 2025 to 2026 will only aggravate the scarcity, as there will be only one new building, Keppel South Central (with a space of 0.6 million sq ft), available for occupiers who are looking to expand or relocate in 2025. This limited supply could potentially shift the market dynamics back in favour of landlords, Tangye states.
Dr Chua also anticipates modest rental growth in the office sector until 2024, followed by a more robust recovery in 2025 as a result of improved global economic conditions, lower interest rates, and companies adapting to new work models and growth strategies.
He has also highlighted that the recent government decision to not award the Jurong Lake District Master Developer site and to place it back on the reserve list has resulted in a more constrained outlook for new office supply across Singapore. If this trend persists, it could lead to tight office supply conditions in the medium term, he adds.