In the third quarter of 2024, the gross effective rent for Grade A offices in the central business district (CBD) remained steady at $11.50 per square foot per month (psf pm), according to recent data from JLL released on September 23. This is following a 0.7% quarter-on-quarter (q-o-q) growth in the second quarter of 2024, a slowdown from the 1.4% q-o-q growth in the first quarter.
This plateau in rental growth coincides with a second consecutive quarter of rising vacancy rates for Grade A offices in the CBD, reaching 8.3% q-o-q in the third quarter of 2024. This increase is mainly due to the recent completion of the IOI Central Boulevard Towers (IOICBT). JLL reports that tenants are becoming increasingly resistant to rent increases amidst this rise in vacancy rates. Excluding the IOICBT, the CBD Grade A vacancy rate would have remained relatively tight, similar to the low point of 5.3% seen in the first quarter of 2024 following the pandemic.
However, the global economic slowdown and the ongoing delay in US interest rate cuts have impacted demand. Andrew Tangye, head of office leasing and advisory at JLL Singapore, notes that net take-up of office space has decreased as companies in Singapore grapple with rising operating costs and exercise caution regarding capital expenditures. Additionally, workplace optimization has led to some tenants reducing their office footprint upon lease expiration.
Tangye adds that this current environment offers opportunities for occupiers looking to upgrade to superior units in high-quality buildings. “For example, a significant portion of Meta’s former space at South Beach Tower has been re-let or is currently in advanced negotiations,” he says. The space has attracted interest from existing occupants in the building as well as tenants relocating from other CBD buildings.
Dr. Chua Yang Liang, head of research and consultancy for JLL Southeast Asia, highlights that small and mid-sized occupiers in growth sectors such as financial services, professional services, and emerging tech industries have primarily driven office demand over the past 12 months. Tangye predicts that CBD vacancy rates will continue to be elevated over the next few quarters as occupiers take time to move into their new offices. However, the actual physical availability of stock in some key office clusters remains limited.
The postponement of Shaw Tower’s completion from 2025 to 2026 will further exacerbate this scarcity. “Occupiers looking to expand or relocate in 2025 only have one new building to choose from: Keppel South Central (0.6 million sq ft) in the Shenton Way and Tanjong Pagar sub-market. This limited supply may shift market dynamics back in landlords’ favor,” Tangye points out.
Dr. Chua also expects office rent growth to “stay modest” through 2024, ahead of a more robust recovery in 2025 due to improved global economic conditions backed by lower interest rates and companies adapting to new work models and growth strategies. He adds that the recent government decision to not award the Jurong Lake District Master Developer site and place the site back on the reserve list has led to a “more constrained outlook” for new office supply across Singapore. If this trend continues, it could lead to tight office supply conditions in the medium term.