Singapore Office Leasing Market Sees More Renewals With Grade A Cbd Office Rents Staying Firm
Savills Research shares that the Singapore office investment market saw an improvement in Q2/2024, surging by 1,707.75% from S$69.7 million in Q1/2024 to S$1.26 billion in Q2/2024. This significant jump was led by six block transactions with three exceeding S$100 million each.
The six block transactions amounted to S$1.12 billion, with six strata office transactions making up the remaining S$137.7 million. The largest deal in the quarter was the sale of Mapletree Anson for S$775 million to PAG, on behalf of its PAG Real Estate Partners Fund III, from Mapletree Pan Asia Commercial Trust. This translates to S$2,352 psf based on the net lettable area of nearly 330,000 sq ft.
Meanwhile, the office leasing market has been at a standstill for a few quarters amidst layoffs from tech companies, tepid economic growth, a high interest rate environment and geopolitical uncertainties. High fit out and reinstatement costs, compounded by the lack of cheaper alternatives have led to companies choosing to renew their leases instead.
The next few quarters may see some activities, as the only office completion in the CBD for 2024 – IOI Central Boulevard Towers – obtains its Temporary Occupation Permit (TOP), and companies that have previously pre-committed to space there relocate from their existing locations to the new building. This is the most significant new office development in the CBD, with its net lettable area of 1.26 million sq ft, since Marina One’s TOP in 2017. Pre-committed firms include Amazon and Morgan Stanley, which have reportedly taken up around 40% of the space in the development.
Average monthly rents of CBD Grade A offices in Savills basket of properties have inched up marginally by 0.2% quarter-on-quarter (QoQ) to S$9.67 psf in Q2/2024 after remaining flat in the previous quarter.
For Q2/2024, almost all the micro-markets registered quarterly increase in rents except for Orchard Road and Shenton Way where rents of Grade A offices stayed firm. For Shenton Way, this marks the third consecutive quarter that rents have held steady. Among the other submarkets, rental growth ranged from 0.2% to 0.4%. The largest increase came from City Hall, with a rise of 0.4%, highlighting a reversal from the 0.1% dip in the previous quarter. Rents of Grade A offices in Marina Bay also rebounded in the second quarter, rising 0.3% QoQ after two consecutive quarters of decline.
Ashley Swan, Executive Director, Commercial, Savills Singapore says, “Similar to the previous few quarters, we see most occupiers continuing to renew their leases in the face of protracted economic uncertainty and elevated cost. With well-established flexible work arrangements and no real expansion plans, most tenants elect to remain as is for now and renew even if the rent increases marginally. We expect this trend to remain for the next few quarters at least.”
Alan Cheong, Executive Director, Research & Consultancy at Savills Singapore adds, “Cost containment pressures have seen more lease renewals, and this result has leasing professionals opining that the market is drifting sideways. Given that tenants are now faced with tighter budgets, they will right-size their offices. Landlords, realising the tenants’ predicament, will be able to hold some form of ransom value over tenants and will thus be able to extract some rental increases in the renewed lease. This is why, despite challenging business conditions, we see rents managing to eke out a 0.2% increase from Q4/2023 over Q2/2024. Given the low level of new leasing activity expected for the second half, we have revised our rental forecast to -1% to +1% for 2024.”
View the full Micro-Market Grade A Office Rents And Vacancy Rates, Q2/2024 table
