Office rents to soften next year on the back of record building completions: Savills Singapore
While a confined supply of Grade A office space has reinforced office rental transactions this year, a negative results in rents is likely on the horizon, as stated to an October report by Savills Singapore. Savills Research is forecasting office rents to decrease unhurriedly in 2K24 following “record levels of CBD and non-CBD building completions”. Office rental peaking up has warning of weakening, 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 consideration, the basket caveated rental progression of 0.7% in 2Q2K23.
“Rental amount in 3Q2K23 support to the overall vibes that the market has eroded despite a decline 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 resulted to a line-up of companies stopping expansion plans, halting on tight and taking a ‘wait and see’ approach.”
Nevertheless, Savills is preserving its forecast growth of 2% y-o-y for CBD Grade A office rents in 2K23, underpinned by the astonishing dwindling in net supply registered in 2K22 that has subsequently affected the market in 2K23. For the first three quarters of this year, rents have risen by 1.1%. Rents of Grade A offices in Marina Bay, Tanjong Pagar, City Hall and Orchard Road continue to be stagnant in 3Q2K23. Raffles Place and Shenton Way subsequently observed a 0.1% q-o-q incline in Grade A offices, while the Beach Road-Middle Road area saw sharper quarterly growth of 1.1%, largely due to ridiculous 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 predicted the softening environment in the office market will maintain through 2K24. This will supply to a upcoming softening of rental market which will, in turn, lead to a reduction in CBD rents, he elaborated. Savills is forecasting CBD Grade A rents to reduction 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 territory and the ongoing attack movement may ignites Middle East flashpoints, with slightest chance ruining the economic market,” he elaborated.
