Prime Office Rental Growth Slows 2Q2024 07 Q O Q Knight Frank
According to a recent report by Knight Frank Singapore, the strong growth in prime office rents seems to be slowing down due to weaker demand and a sluggish economic climate.
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In the second quarter of 2024, the average rent for prime offices in Raffles Place and Marina Bay increased by only 0.7% from the previous quarter, reaching $11.28 per square foot (psf) per month. This is a slight increase from the 0.6% growth recorded in the first quarter. Overall, rental growth for the first half of 2024 was 1.3%, a significant decrease from the 2.5% growth seen in the first half of last year.
Knight Frank observed that some landlords have started adjusting their rental expectations, particularly for buildings with available space. Additionally, the current economic uncertainty has caused some businesses to put their expansion plans on hold, while others are considering relocating to more affordable premises after their current lease ends.
The report also noted a slight decline in occupancy levels in the CBD. In the Raffles Place and Marina Bay areas, occupancy decreased from 95.6% in the first quarter to 95% in the second quarter. Overall, CBD occupancy declined from 94.7% to 93.6% over the same period.
Knight Frank also reported an increase in decanted spaces in the market, as companies in the financial and technology sectors consolidate their business functions in a central location. For example, Chinese tech company Tencent recently relocated its staff from the WeWork at 30 Raffles Place to CapitaSky on Robinson Road. In addition, US tech giant Meta has begun consolidating its office space, and French bank BNP Paribas is expected to let go of some of its space at Ocean Financial Centre when the lease expires at the end of the year.
The growing number of decanted spaces is placing pressure on landlords to lower their rental expectations. As a result, owners of quality office assets are locking in tenants for the next few years to preserve rental income. On the other hand, occupiers are exercising caution in terms of capital expenditure and resisting substantial rent increases.
In light of this, Knight Frank predicts that office rental growth will remain subdued for the rest of the year. Prime-grade office rents are expected to stay relatively unchanged in the next six months, and rental growth for the whole of 2024 is estimated to be between 1% and 3%.