According to recent data published by JLL on September 23, the gross effective rent for CBD Grade A offices in 3Q2024 has remained steady at $11.50 psf per month (pm), following a 0.7% q-o-q growth in 2Q2024. This marks a slowdown from the 1.4% q-o-q growth seen in 1Q2024.
This rental growth plateau aligns with the second consecutive quarter of increasing vacancy rates for Grade A offices in the CBD, reaching 8.3% q-o-q in 3Q2024. The main contributing factor to this rise is the recent completion of the IOI Central Boulevard Towers (IOICBT). JLL observes that tenants are becoming more resistant to rental hikes in light of this upward trend in vacancy rates. Excluding the IOICBT, the CBD Grade A vacancy rate would have remained relatively tight, similar to the post-pandemic low of 5.3% in 1Q2024.
However, the global economic slowdown and delay in US interest rate cuts have resulted in a decrease in demand. Andrew Tangye, head of office leasing and advisory at JLL Singapore, notes that net take-up of office space has declined as companies in Singapore grapple with rising operating costs and exercise caution when it comes to capital expenditures. In addition, workplace optimization has led to some tenants reducing their office footprint upon lease renewal.
Moreover, Tangye points out that this market environment presents opportunities for occupiers looking to upgrade to top-quality units in high-quality buildings. He mentions, “For example, a substantial portion of Meta’s previous space at South Beach Tower has been re-let or is currently in advanced negotiations.” This 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 the office demand over the past 12 months has been primarily driven by small and mid-sized occupiers from expanding sectors such as financial services, professional services, and emerging tech industries.
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Tangye predicts that the overall CBD vacancy rates will remain high 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 delay in the completion of Shaw Tower from 2025 to 2026 will only further exacerbate the scarcity. Tangye explains, “Occupiers looking to expand or relocate in 2025 would have only 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 could shift market dynamics back in landlords’ favor.”
Dr Chua also anticipates that office rent growth will stay modest through 2024, before experiencing 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 not to award the Jurong Lake District Master Developer site and instead placing it 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.