Office rents in Singapore rise after two quarters of declines

Some tenants snap up limited premium spaces while others opt to stay put with costs in mind

Rents in Singapore’s office market rose in the first three months of the year, shaking off two consecutive quarters of declines as some tenants snapped up limited premium spaces while others renewed their leases instead of relocating owing to cost considerations, according to Colliers.

In the January-March period, premium and central office rents in Southeast Asia’s main financial hub rose by 0.7 per cent on a quarterly basis to S$11.57 (HK$67.20) per square foot, the property consultancy said in a report yesterday. From a year ago, they were higher by 1 per cent.

Vacancy rates remained steady at 2.6 per cent, it added.

“Singapore office rents have displayed their mettle with a rebound this quarter,” said Bastiaan van Beijsterveldt, managing director for Singapore at Colliers.

“Given that office footprints have remained largely unchanged or occupiers have [downsized], relocation and expansion moves could gradually pick up, especially towards the end of the year when the economy is poised to rebound and cost concerns recede.”

The increase in rents was largely driven by leases in the main business zones such as

Raffles Place and the New Downtown area.

Demand was diverse, with consumer goods companies, law firms and non-bank financial institutions all looking for space. Meanwhile, technology companies that were previously downsizing were now maintaining the status quo as they looked to artificial intelligence as a potential new avenue of growth, Colliers said.

Still, rents in the core and premium segment were likely to be “rangebound and recover more meaningfully in the latter part of the year” along with an anticipated improvement in the economy, it said.

Singapore’s economy is forecast to grow by 2.4 per cent this year, rising significantly from the 1.1 per cent expansion seen in 2023.

According to Savills, premium office rents in the first quarter were unchanged at S$9.65 per square foot compared with the preceding three months. On an annual basis, they rose by 0.94 per cent.

In the high-end category, the vacancy rate improved to 6.1 per cent from 6.5 per cent on a quarterly basis, but was only marginally better than the 6.2 per cent recorded 12 months ago.

“We are expecting grade A [central business district] office rents to come off 2 to 3 per cent year on year by [the end of 2024],” said Alan Cheong, executive director of research and consultancy at Savills in Singapore.

“The declines will be concentrated in the lower tier of grade A buildings whilst the top end of the spectrum, or what we label as grade AAA buildings, will hold firm.”

Cheong predicted the performance of the office market would be driven by the “next industrial revolution, one that is expected to embed artificial generative intelligence [AGI] into work processes”.

“If AGI leads to significantly lower overall net manpower requirements, plus the ability to offshore more functions, then the impact on office demand will be negative,” he said.

“At this juncture, the next generation of hardware for AGI has only just been rolled out, and it will take some quarters for the big software companies to build on these new chipsets before showcasing their services to end-users such as banks, manufacturing companies, call service centres, media and shipping, among others.”