Singapore office rents hold firm: JLL

SINGAPORE, September 23, 2024 – Singapore's office vacancy hits 10-quarter high as large supply completion and near-term economic headwinds challenge the office sector's continued rental growth trajectory.

Latest data from JLL Research (NYSE: JLL) revealed that the overall Central Business District (CBD) Grade A office vacancy rate climbed for the second consecutive quarter to 8.3% as of 3Q24, largely due to the addition of the recently completed IOI Central Boulevard Towers (Phase 1 in 2Q24 and Phase 2 in 3Q24). However, excluding IOI Central Boulevard Towers, the CBD vacancy rate would have remained relatively tight, similar to the post-COVID low of 5.3% in 1Q24, reflecting relatively stable demand.

Office rent growth plateaued in 3Q24 as occupiers' resistance to rent hikes intensified amid the short-term uptick in overall vacancy. Research from the global real estate consultancy showed that gross effective rent for CBD Grade A office space remained unchanged at SGD11.50 per square foot (sq ft) per month in 3Q24. This follows a 0.7% quarter-on-quarter (qoq) growth in 2Q24, which was a marked slowdown from the 1.4% qoq growth recorded in 1Q24. Global economic sluggishness combined with the prolonged delay in US interest rate cuts has weighed on demand.

Andrew Tangye, Head of Office Leasing and Advisory for JLL Singapore, opined, “Companies in Singapore continue to grapple with higher operating costs and remain cautious about capital expenditure, requiring a stronger justification for relocation. In addition, workplace optimisation has led to some tenants reducing their office footprint upon lease expiration. Both factors have reduced the net take-up of office space.

Amidst these conditions, opportunities remain. A handful of occupiers, who can build a strong justification for a relocation, are capitalising on these current opportunities to upgrade to superior units in high-quality buildings. The move would also allow them to redesign and future-proof their workspaces, boosting enquiries in buildings that were previously facing vacancy pressure.

For example, a significant portion of Meta's former space at South Beach Tower has been re-let or is currently in advanced negotiations, drawing tenants relocating from other CBD buildings as well as existing occupants expanding within the building.”

Dr. Chua Yang Liang, Head of Research and Consultancy for JLL Southeast Asia, commented, "Office demand continued to be driven primarily by small and mid-sized occupiers in growth sectors such as financial services, professional services, and emerging tech industries. This trend has been fairly consistent over the past 12 months."

Tangye concluded, “As occupiers take time to move into their new offices before relinquishing their old spaces, overall CBD vacancy rates may remain elevated over the next few quarters. The actual physical availability of stock in some key office clusters remains limited. This scarcity is further exacerbated by the pushback in Shaw Tower's completion from 2025 to 2026. 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/ Tanjong Pagar sub-market. This limited supply could shift market dynamics back in landlords' favour.”

Echoing that, Dr. Chua stated, “Rent growth is expected to stay modest through 2024 but is poised for a more robust recovery in 2025, as global economic conditions should improve on the back of lower interest rates and companies adapt to new work models and growth strategies.

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 persists, it could lead to tight office supply conditions in the medium term."