Space at the newly built IOI Central Boulevard Towers is about 75% committed (Image: Google)
Office rents in Singapore’s central region dipped further in the last three months of 2024, as landlords prioritised maintaining occupancy amid market uncertainty.
According to data released on Friday by the Urban Redevelopment Authority (URA) , office rents in Singapore’s central region fell 0.9 percent in the fourth quarter of 2024, extending a 0.5 percent drop in the previous quarter. Despite the decline in the second half of 2024, office rents for the full year remained flat from the preceding 12 months, when leasing rates had climbed 13.1 percent.
Vacancy for office space in the country’s central region fell to 10.6 percent by the end of the fourth quarter, from 11 percent in the July through September period. Occupied space also grew by 23,000 square metres during the period, a slight uptick from the 17,000 square meters added in the previous quarter.
Amid global uncertainty, analysts said tenants were reluctant to expand or incur relocation costs, opting instead to renew leases at their current locations. Office landlords also took a cautious approach, focusing on maintaining occupancy over pushing for higher rents, a trend which experts expect to continue this year.
Flight to Quality
Properties outside Singapore’s Downtown Core and Orchard Planning Area commercial hubs led the decline in rents in the central region during the fourth quarter. Analysts noted that these properties faced increased pressure, with landlords offering concessions to attract tenants.
URA Chairman Peter Ho Hak Ean
The URA data shows that office rents for Category 1 properties – which are described as being located in prime business hubs in the Downtown Core or the Orchard Planning Area – remained unchanged at S$12.52 per square foot. Category 2 properties, which are located in other districts of the central region, saw rents drop 3.2 percent to an average of S$6.35 per square foot from S$6.56 in the previous quarter.
Vacancy for Category 1 properties also fell during the quarter, dropping from 10.3 percent to 9.1 percent. Vacancy in Category 2 offices remained unchanged at 11.3 percent.
As rents level off, occupiers are opting for higher-quality offices in the Downtown Core and Orchard Planning Area, analysts said, as these locations align with companies’ corporate image goals and offer better prospects for talent attraction and retention.
“Despite a slowdown, the Downtown Core remains the main driver of office net demand, highlighting persistent centralisation amidst rising return-to-office efforts,” Cushman & Wakefield head of research for Singapore and Southeast Asia, Wong Xian Yang said.
“Some vacated spaces from rightsizing and consolidation by large occupiers were quickly backfilled. While large occupier demand was limited by tight financial conditions, smaller companies actively sought premier spaces to enhance brand positioning.”
As of the end of the fourth quarter, approximately 909,000 square metres of office space was under development in Singapore, up from 903,000 square metres at the end of September.
Prime Picks Prevail
The diverging performance of properties in central business hubs and secondary areas is set to continue this year, according to analysts.
“This flight to quality should continue to pressure asset owners of functionally obsolete buildings to undertake asset improvement if not redevelopment or conversion, taking us a step closer to the vision of a more dynamic mixed neighbourhood in the central business district,” JLL head of research and consultancy for Southeast Asia, Dr. Chua Yang Liang said.
Analysts said office leasing is likely to be muted in the first half of the year, as firms adopt a wait-and-see approach amid potential market volatility and regime change in the US.
“Occupier demand is expected to remain modest in the first half of 2025 amid uncertainties, including potential policy changes associated with the Trump 2.0 administration, but should strengthen later in the year as economic clarity improves and sustained growth fuels business expansion,” JLL said.
Knight Frank said it expects prime office rental growth to range from -1 percent to 2 percent this year, while CBRE predicts 2 percent growth.
Earlier this month, Knight Frank said that while Singapore’s once-aggressive tech and finance industries have slowed their take-up of space, falling interest rates might support demand for this year.
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