Downtown Singapore Office Rents Slip For First Time Since Pandemic

Average rents for Grade A offices in Singapore’s central business district fell for the first time in over two years during the third quarter, sliding by 0.3 percent in the face of dipping demand and an influx of new space, according to JLL.

The decline in leasing rates was the first since a pandemic-induced dive in early 2021, with average rents falling to S$11.29 ($8.26) per square foot per month by the end of this month from S$11.32 per square foot as of 30 June, the property consultancy’s data showed.

JLL attributed the decline — which snapped a nine-quarter upswing in rents — in part to a broader economic slowdown and predicted that rates will continue to slide in the coming quarters as occupiers become more cautious.

“The uncertain near-term outlook stemming from a combination of slowing economic growth, geopolitical tensions and rising prices have continued to keep occupiers wary and cost-conscious, resulting in weaker take-up of office space,” said Andrew Tangye, head of office leasing and advisory for JLL Singapore. “At the same time, office stock is being returned to the market at an increasing pace as more occupiers opt to right-size upon lease renewal to manage costs.”

Enterprise Tenants Get Cautious

Tay Huey Ying, research and consultancy head at the property agency, said owners of at least 15 assets in the CBD lowered rents from July through September, compared to the prior three month period, in a bid to attract tenants enjoying new options from projects entering the market.

Small to medium-sized occupiers were more active office shoppers during the most recent three months than their enterprise-scale peers, according to Tangye. Aside from lowering rents, Tangye said landlords are also dividing larger spaces into smaller units and are providing fit-out perks to attract more tenants.

Compared to a year earlier, rents in Singapore’s central business district were still up by 2 percent compared to the S$11.06 per square foot monthly average in the same period of 2022, after landlords enjoyed stronger demand late last year and in early 2023 following the relaxation of COVID-19 restrictions.

New Towers Enter the Market

Aside from spending-conscious tenants, landlords also had to grapple last month with the upcoming debuts of three office projects which will roll out a combined 2.3 million square feet (213,680 square metres) of new Grade A office space in the central business district in the next two years.

“Against the backdrop of an influx of upcoming projects competing for a limited pool of tenants, the short-term oversupply of office space could become more pronounced. Downward pressure on rents is set to intensify and we could see rents correcting further in the coming quarters,” Tay said.

IOI Properties Group topped out its IOI Central Boulevard Towers project in August, putting it on track to officially complete 1.3 million square feet across a pair of Marina Bay towers in the first quarter of 2024.

By the fourth quarter of next year, Keppel Corp’s 33-storey Keppel South Central is set to roll out about 600,000 square feet in Tanjong Pagar while the redevelopment of Shaw Tower on Beach Road will see 400,000 square feet of additional floor area coming online in early 2025.

Marketing activities for the projects are already underway with around one-third of the total area in the three properties already committed at the time of publication.

Muted Rents For 2023

Among the few major leases signed in the third quarter was Morgan Stanley’s commitment to take up over 100,000 square feet across at least five floors at IOI Central Boulevard Towers, as the New York-based investment bank looks to relocate its Southeast Asian hub to a new building in the CBD.

By the end of 2023, Tay expects gross effective rents for Grade A offices in Singapore’s central business district to stay level or potentially slide by as no more than 1 percent from the S$11.19 per square foot per month average at the end of 2022.

The muted outlook stands in sharp contrast to the 9.4 percent surge in premium office rents across the city-state last year.

Looking further down the road, JLL expects leasing activity to remain bright for Grade A offices in downtown Singapore in the medium-term, as the city-state continues to reinforce its reputation as a regional financial hub. The company also noted that new supply will likely be constrained by the lack of greenfield sites for new developments in Singapore’s prime districts.