Office rents to soften next year on the back of record building completions: Savills Singapore

: reportPrime office rents continued to hold up in 2Q2023, despite a sluggish economy, according to the latest report by Knight Frank Singapore. Rising marginally by 0.3% q-o-q, prime office rents edged up to $10.90 psf as of 2Q2023, Knight Frank’s data shows. The report also found that occupancy rates were resilient for the prime office market, ‎averaging at 95.1% in 2Q2023, up 0.1% q-o-q.According to the report, the stable rental market of 2Q2023 “demonstrates the de‎gree of uncertainty among occupiers where larger decisions have been delayed, leading to an increasing appetite for short-term leases”.Meanwhile, Asia Pacific companies are leading the return to office, according to business solutions provider CBRE’s latest Global Occupier Survey. According to the survey, 95.2% of Asia Pacific occupiers plan to return to their offices either this quarter or the next. This is significantly higher than the global average of 83.2%.

Prime office rents in Singapore continued to hold up in 2Q2023 despite a sluggish economy, according to the latest report by Knight Frank Singapore. Rising marginally by 0.3% q-o-q, prime office rents edged up to $10.90 psf as of 2Q2023, Knight Frank’s data shows. The report also found that occupancy rates were resilient for the prime office market, ‎averaging at 95.1% in 2Q2023, up 0.1% q-o-q.

Asia Pacific companies are leading the return to the office, according to business solutions provider CBRE’s Global Occupier Survey. The survey found that 95.2% of Asia Pacific occupiers plan to return to their offices in the current or next quarter. This is significantly higher than the global average of 83.2%.

Nevertheless, rental growth in Singapore’s office market has tempered, with the average monthly rents of the basket of CBD Grade A offices tracked by Savills edging up just 0.1% q-o-q in 3Q2023 to $9.64 psf. According to Savills Research, this is likely to lead to a downward adjustment in rents in 2024, following “record levels of CBD and non-CBD building completions”.

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Savills Research is maintaining its projected growth of 2% y-o-y for CBD Grade A office rents in 2023, underpinned by a significant reduction in net supply in 2022. Nonetheless, Ashley Swan, executive director, commercial leasing at Savills Singapore believes that the market has softened, and the continued economic uncertainty, global tensions and high interest rate environment have led to occupiers delaying expansion plans.

Savills expects that lackluster sentiment in the office market will remain through 2024, leading to a further slowdown in leasing activity which will, in turn, lead to a decline in CBD rents. The firm is projecting CBD Grade A rents to fall between 2% and 3% y-o-y in 2024.

This comes as islandwide office supply is expected to see an influx next year following the completion of projects such as IOI Central Boulevard Towers, Keppel South Central, Paya Lebar Green and Labrador Tower. However, Alan Cheong, executive director, research and consultancy at Savills Singapore cautions that the impact may not be strong enough to “convincingly turn rents around” in light of rising business and global political risks.