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

: ColliersThe tight supply of Grade A office space in Singapore this year has played a part in underpinning office rental rates. However, a downward adjustment in rents is likely on the horizon. Savills Research is forecasting that rentals will soften in 2024 due to record levels of CBD and non-CBD building completions.

Signs of tempering office rental growth are already evident, with monthly rents of CBD Grade A offices only seeing a slight q-o-q increase of 0.1% in 3Q2023. This is due to the current economic uncertainly and high interest rate environment prompting occupiers to adopt a ‘wait and see’ approach.

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Despite this, Savills is still projecting a growth of 2% y-o-y for CBD Grade A office rents in 2023 – largely driven by the reduction of net supply registered last year. Grade A office rental rates in the CBD saw a slight quarterly increase in Raffles Place and Shenton Way, while the Beach Road-Middle Road area saw the strongest growth of 1.1%.

However, Savills is expecting this lackluster sentiment to remain through 2024, leading to a further slowdown in leasing activity and a subsequent decline in CBD rents of 2-3% y-o-y in 2024.

The influx of islandwide office supply in 2024 due to projects such as IOI Central Boulevard Towers, Keppel South Central, Paya Lebar Green and Labrador Tower may not be enough to “convincingly turn rents around” in light of rising business and global political risks. This includes the attacks on Israel’s soil that could potentially ignite further flashpoints in the Middle East.

For Singapore’s Grade A office market, the current economy and global climate present a unique set of challenges in the year ahead. It looks likely that rents will adjust accordingly in 2024 due to the influx of new supply and uncertain outlook. Ultimately, businesses should take a proactive approach to prepare for potential changes in leasing activity and office rental rates.