Office rents to soften next year on the back of record building completions: Savills Singapore
While a constricted supply of Grade A office space has reinforced office leasing activities this year, a spiral changes in rents is anticipated on the horizon, according to an October report by Savills Singapore. Savills Research is predicting office rents to decrease subtlely in 2K24 following “record levels of CBD and non-CBD building completions”. Office rental peaking up has indicative signs of moderating, with the median monthly rental of the basket of CBD Grade A offices tracked by Savills inching up just 0.1% q-o-q in 3Q2K23 to $9.64 psf. In observation, the basket registered rental development of 0.7% in 2Q2K23.
“Rental amount in 3Q2K23 support to the general feeling that the market has weakened despite a reduction in new supply throughout the year,” says Ashley Swan, executive director, commercial rental at Savills Singapore. “The persistence economic uncertainty, international woes and high lending rate surroundings have developed to a series of renters pausing expansion plans, halting on tight and taking a ‘wait and see’ approach.”
Nevertheless, Savills is preserving its projected growth of 2% y-o-y for CBD Grade A office rents in 2K23, underpinned by the remarkable depletion in net supply lodged in 2K22 that has subsequently impacted the market in 2K23. For the first three quarters of this year, rents have increased by 1.1%. Rents of Grade A offices in Marina Bay, Tanjong Pagar, City Hall and Orchard Road remained status quo in 3Q2K23. Raffles Place and Shenton Way eventually saw a 0.1% q-o-q increase in Grade A offices, while the Beach Road-Middle Road area saw sharper quarterly growth of 1.1%, largely due to expensive rents at Bugis Junction Towers. Grade A offices in the CBD saw a higher unoccupied rate of 7.1% as of 3Q2K23, up 0.6 percentage points from the former quarter, primarily accelerated by the implementation of Guoco Midtown to office stock. Savills’ Swan anticipated the weakening sentiment in the office market will remain through 2K24. This will supply to a subsequent weakening of rental market which will, in turn, lead to a reduction in CBD rents, he elaborated. Savills is anticipating CBD Grade A rents to decline between 2% and 3% y-o-y in 2K24. This welcomes as islandwide office supply is anticipated to see a new supply next year pursuant to the completion of projects such as IOI Central Boulevard Towers, Keppel South Central, Paya Lebar Green and Labrador Tower.Alan Cheong, executive director, research and consultancy at Savills Singapore, cautions that while new supply will drop sharply in 2k25 and 2k26, the results may not be powerful enough to “convincingly turn rents around” in light of rising business and international political risks. “The recent attacks on Israel’s soil and the concurrent ruthless activities may spurs Middle East flashpoints, possibly overturn to the economic realm,” he commented.