According to a research report by Knight Frank, prime grade office rents in the Raffles Place and Marina Bay precinct have shown slight growth in the third quarter of 2024, with an increase of 0.6% quarter-on-quarter to reach an average of $11.35 per square foot per month. However, this is a slower pace compared to the 0.7% expansion in the second quarter of 2024.
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The 2% rental growth for the first nine months of 2024 falls below the 3.4% growth recorded in the same period last year. This slower trend can be attributed to the absence of expansions from large tech companies, as many of them have put their plans on hold due to a slowdown in the tech sector and an uncertain economic climate.
Calvin Yeo, managing director of occupier strategy and solutions at Knight Frank Singapore, notes that the tech companies are not the only ones downsizing their office footprint. Many companies are also opting to reduce their space or move to smaller, higher-quality offices in response to flexible work arrangements.
Despite this, most occupiers are still choosing to renew their leases upon expiry, with landlords becoming more flexible in order to retain tenants in the current economic climate. As a result, the occupancy levels in the CBD remain healthy, with a 93.5% occupancy rate in prime offices in the Raffles Place and Marina Bay precinct as of September.
In terms of leasing activity, while large occupiers have been quiet in the market, there has been an increase in demand from smaller occupiers. This includes international firms looking to set up in Singapore as well as an increase in single-family offices, which has resulted in a rising demand for boutique office spaces.
On the other hand, leasing activity by larger occupiers, both domestic and cross-border, has been slow due to the uncertain economic environment. Yeo also notes that the lack of available large floorplate office space is also hindering the movement of occupiers looking to consolidate their business functions.
Yeo predicts that the office market will remain largely unchanged for the rest of the year, with limited relocation activity except for natural lease expiries. He expects prime office rents to stay flat, with a modest 3% growth for the entire year. The upcoming office supply in 2024 includes Labrador Tower and Pasir Panjang Road, but Yeo believes that the interest rate cuts will support the services sector and contribute to economic growth.
In conclusion, while prime office rents have shown slow growth in the third quarter of 2024, the overall occupancy levels remain healthy, with an increase in demand from smaller occupiers. The office market is expected to remain stable for the rest of the year, with modest rental growth and increased supply in the near future.