Singapore's Office Rents Ends 2024 with Modest Growth

Singapore, 19 December 2024 – The office market's performance appeared modest in comparison to Singapore's projected GDP growth of 3.5% in 2024, which surprised on the upside, according to CBRE. 

Through the year, leasing sentiment has been weighed down by high fit-out costs, workplace transformation, continued hybrid work arrangements and the lack of clear demand drivers, and possibly the delay of rate cuts. 

In addition, the completion and some excess availability in IOI Central Boulevard Towers has led vacancy rates in the Core CBD (Grade A) office market to double from 3.6% in Q1 2024 to 7.8% in Q3 2024, which was the highest since Q3 2017, when it hit 8.4% following the introduction of the mega office project, Marina One.

With progressive take-up in IOI Central Boulevard in Q4 2024, vacancy has improved to 7.0%, albeit still elevated. As a result, gross effective rents for Core CBD (Grade A) office remained unchanged for the third consecutive quarter in Q4 2024 at S$11.95 psf/month. For the full year, Core CBD (Grade A) rents grew by 0.4% y-o-y, a slower pace compared to the 1.7% rental growth in 2023.  

David McKellar, CBRE Head of Office Services, Singapore, highlighted, "In response to heightened competition, landlords are increasingly offering incentives and looking at ways to increase leasing velocity such as speculative fit-outs for smaller units, extended rent-free periods for larger units, and capital expenditure contributions, which helps to provide flexibility and capex neutrality for tenants.”

Premium office spaces with superior specifications continue to be a significant factor influencing occupiers' choices, with prime locations such as Marina Bay and Raffles Place remaining highly sought after. Discerning businesses that consider real estate strategy to be part of their talent attraction and retention efforts continue to demonstrate a strong preference for buildings with superior attributes, especially those that are located within the CBD. This was keenly observed in the private wealth asset management, insurance, and legal sectors this year. Additionally, building specifications and ESG considerations are increasingly shaping occupiers' decisions. Tenants are prioritising buildings with green certifications and sustainable features to align with their corporate sustainability goals. Towards the end of 2024, CBRE observed a decline in shadow space from a peak of 0.7 million sq. ft. in Q1 2023 to approximately 0.2 million sq. ft. by Q4 2024.

CBRE Research expects Core CBD (Grade A) rents to outperform 2024’s growth of 0.4%, coming in at about 2.0% for 2025, mainly driven by a higher GDP forecast, the continued flight to quality trend, and limited future supply. That said, CBRE Research remains cautiously optimistic of 2025’s outlook in view of tentative occupier sentiment due to global economic uncertainties, and concerns over higher cost remains, which may tend to drive renewals while discouraging relocations. 

Tricia Song, CBRE Head of Research, Singapore and Southeast Asia noted, “With IOI Central Boulevard Towers being the last development and no significant new supply expected in the Core CBD (Grade A) for the next three years, we believe vacancy in this submarket has peaked. We anticipate that rental growth in the Core CBD (Grade A) will resume and accelerate once the excess space is absorbed, likely in the second half of 2025.”

Mr McKellar sees an opportunity for tenants to take advantage of options that represent good value, as availability of space will become tighter from 2025. He also noted that the average supply islandwide for 2025-2029 is expected to be 34% lower than the past decade, which will further constrain availability. 

He advises, “With the anticipated reduction in new supply over the next five years, tenants should act swiftly to secure their space. The significant decrease in average supply, coupled with sustained demand, will likely drive up rents and limit options for occupiers. It is crucial for corporates to establish clear workplace strategies that support the post-pandemic environment and align with their long-term goals, considering high fitout costs.”

On the market’s outlook for next year, Ms Song adds, “As hybrid work arrangements continue to evolve post-pandemic, it is evident that the future of work, both globally and in Singapore, will be predominantly hybrid. Most companies have largely achieved a steady state of office attendance by now, but businesses are constantly reassessing their office needs. According to our 2024 APAC Office Occupier Survey, about 32% of companies anticipate an increase office usage over time, with this trend being particularly pronounced in the Technology, Media and Telecom (TMT) sector, where half of the respondents expect increased usage. The potential rise in space requirements could drive office demand, but this shift could take time as leases are typically signed for three to five years and existing space allocations are fixed. Instead, in the near term, companies can explore recalibrating their workplaces by prioritising space efficiency and reducing excess space.”