Downtown Singapore Office Rent Growth Set to Slow to 2% in 2024 as Supply Surges

Growth in Grade A office rents in downtown Singapore is expected to taper to 2 percent next year from 2023 levels amid a surge in new supply, according to Cushman & Wakefield.

After rising 6.5 percent in 2022 and an estimated 2.5 to 3 percent this year, the introduction of three major projects into the market, as well as more cautious spending by major corporates, is expected to cool the market in the coming year, the agency said in its Singapore Market Outlook.

The report noted that heightened supply — including nearly 2.6 million square feet (241,548 square metres) of combined new space from IOI Central Boulevard Towers, Keppel South Central and Labrador Tower — could push Grade A office vacancy rates in the central business district to above 5 percent in 2024, even as demand picks up gradually throughout the year.

“With more options in the market, occupiers with expiring leases in 2024/2025 should take this opportunity to negotiate their leases,” Cushman & Wakefield said. “This window of opportunity may be fleeting as the market will return to a tight supply situation post-2024.”

Dipping Demand in Q3

Cushman’s forecast comes after JLL reported that average rents for CBD Grade A offices fell for the first time in more than two years during the third quarter, sliding 0.3 percent in the face of dipping demand and an influx of new space.

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

Among key projects in the supply pipeline, Malaysia’s IOI Properties Group topped out its IOI Central Boulevard Towers project in August, putting it on track to officially complete 1.24 million square feet across a pair of Marina Bay towers in the first quarter of 2024.

Keppel Corp’s 33-storey Keppel South Central is set to roll out 650,000 square feet in Tanjong Pagar by the fourth quarter of next year, while the redevelopment of Shaw Tower on Beach Road will see 400,000 square feet of additional floor area coming online in early 2025.

SP Group’s Labrador Tower is poised to add almost 700,000 square feet of office space in the Labrador Park area on the western fringe of downtown upon completion in mid-2024, with the Temasek-owned electric company touting a long list of eco-friendly features and Green Mark Platinum Super Low Energy certification.

The finance sector remained the dominant driver of CBD office demand in 2023, accounting for 46 percent of new leases by Cushman’s estimate. One of the few large deals 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.

Investment Market Challenge

Core investment in offices may remain challenging in 2024, with borrowing costs likely to stay above Grade A net yields of 3.2 percent, according to Cushman’s outlook.

Major office transactions tracked by the agency in the second half of 2023 included the acquisition of Shenton House in Marina Bay by IOI boss Lee Yeow Seng for S$538 million ($392 million) and the purchase of the VisionCrest Commercial building in the Orchard area by a joint venture of TE Capital, LaSalle and Metro Holdings for S$455 million.

The acquisitions are expected to be value-add or redevelopment plays. “Value-add and opportunistic investments, which can yield higher returns, would continue to dominate in 2024, as interest rates, while expected to decline gradually, may remain prohibitive over the short term,” Cushman said.