According to Knight Frank’s research report, prime grade office rents in Singapore’s Raffles Place and Marina Bay precinct increased by 0.6% quarter-on-quarter in 3Q2024, reaching an average of $11.35 per square foot per month. However, this growth was slightly slower than the 0.7% quarter-on-quarter expansion seen in 2Q2024.
The latest data shows that prime office rental growth for the first nine months of 2024 was at 2%, lower than the 3.4% growth recorded during the same period last year. This slower growth can be attributed to a lack of expansions by large occupiers, particularly tech companies. Calvin Yeo, Managing Director of Occupier Strategy and Solutions at Knight Frank Singapore, notes that many tech companies are postponing their expansion plans due to a slowdown in the tech sector and an uncertain economic climate.
Instead of expanding, several tech firms have chosen to downsize their office spaces. For example, Facebook’s parent company, Meta, did not renew its lease for seven floors at South Beach Tower after global layoffs. As a result, their staff members were relocated to Meta’s offices at Marina One. In addition, some companies are opting to reduce their office footprint or move to smaller, higher-quality spaces due to the rise of flexible work arrangements. “Office users are finding ways to improve the quality and experience of their workplace while using less space,” says Yeo.
Despite the slower growth in rents, the majority of occupiers in the market are choosing to renew their office leases upon expiry. Landlords are also becoming more open to negotiations in order to retain tenants amid the uncertain economic climate, making lease renewals more attractive, Yeo adds. As a result, occupancy levels in the Central Business District (CBD) remain healthy, with prime offices in Raffles Place and Marina Bay precinct recording an occupancy rate of 93.4% as of September, only slightly lower than the 95% recorded in 2Q2024. The CBD’s overall occupancy rate was 93.5% in 3Q2024, compared to 93.6% in the previous quarter, despite new supply from the completion of IOI Central Boulevard Towers.
Smaller space occupiers are more active
The former Meta space at South Beach Tower has been “broadly” taken up by smaller occupiers, according to Yeo. This reflects a trend observed in the market throughout most of the year, where leasing activity among larger occupiers has been limited, but demand from tenants occupying smaller spaces has been strong. Some of this demand comes from international companies looking to establish a presence in Singapore, particularly in the investment and wealth management sectors, which are drawn to the stability, infrastructure, and position of the city-state as a gateway city. For instance, US-based electronic trading company Millennium Advisors opened its Singapore office at Marina Bay Financial Centre Tower 1 in July, marking its first location in the Asia Pacific region.
In addition, the increase in the number of single-family offices in Singapore has contributed to demand. “As of August 2024, Singapore had a total of 1,650 single-family offices, an increase from 1,400 at the end of 2023,” Yeo notes. While these firms typically occupy small spaces of less than 5,000 sq ft, the volume has led to an uptick in boutique demand in the office leasing market.
On the other hand, both domestic and cross-border leasing activity among larger office occupiers has been subdued. While this is partly due to companies waiting and watching amid the uncertain economic environment, the lack of available large floorplate office space is also hindering movement by occupiers looking to consolidate various business functions under one roof, says Yeo.
Rents expected to remain stable in the coming months
Yeo predicts that office market dynamics will largely remain unchanged for the rest of the year. “On the domestic front, the office leasing market is unlikely to see significant relocation, except for natural lease expiries by large space users,” he says. For leases expiring in the next 12 to 18 months, Yeo believes some companies may opt to downsize their office spaces due to the rise of flexible working. He expects prime office rents to remain relatively flat, with a growth of around 3% for the entire year. Upcoming office supply includes Labrador Tower along Labrador Villa Road and Pasir Panjang Road with 807,293 sq ft, and Paya Lebar Green on Jalan Afifi with 388,879 sq ft.
However, Yeo notes that interest rate cuts could provide a boost to service sectors, including finance and insurance, which will support economic growth. Singapore’s economy is expected to grow between 2% and 3% in 2024.
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