Office rents to soften next year on the back of record building completions: Savills Singapore
: CBREAlthough office rental rates in Singapore are likely to drop next year, Savills believes that prime office rents in the CBD will remain strong if the economic recovery continues as expected.
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Amidst record levels of CBD and non-CBD building completions, Office rental growth in the Singaporean market has begun to show signs of tempering.According to an October report by Savills Singapore, an average monthly rent of the basket of CBD Grade A offices tracked by Savills just edged up 0.1% q-o-q in 3Q2023 to $9.64 psf, compared to the 0.7% growth registered in 2Q2023. Ashley Swan, executive director of commercial leasing at Savills Singapore, claims that the continued economic uncertainty, global tensions and high interest rate environment have caused a large number of occupiers to delay their expansion plans or adopt a ‘wait and see’ approach.
Savills is nonetheless maintaining the forecasted growth of 2% y-o-yrs for CBD Grade A office rents in 2023, attesting to the significant reduction in net supply seen in the previous year. Moreover, the rents of Grade A offices in Marina Bay, Tanjong Pagar, City Hall and Orchard Road remained unchanged in 3Q2023, with the only notable q-o-q increases of 0.1% and 1.1% for Raffles Place and Shenton Way, as well as Beach Road-Middle Road areas respectively.
This weak sentiment in the overall office market is expected to remain throughout 2024 and consequently contribute to a further slowdown in leasing activity, leading to a decline in CBD rents of 2% to 3% y-o-y. This comes in light of the large influx of islandwide office supply anticipated for the coming year, namely IOI Central Boulevard Towers, Keppel South Central, Paya Lebar Green and Labrador Tower.
Savills’ Alan Cheong cautions that while new supply will drop sharply in 2025 and 2026, the positive effects may not be great enough to “convincingly turn rents around” in the face of the rising business and global political risks that have arisen recently. Nonetheless, Savills still believes that prime office rents in the CBD will stay strong if the economic recovery is sustained.