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

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While a restricted supply of Grade A office space has underpinned office rental transactions this year, a spiral changes in rents is anticipated on the horizon, according to an October report by Savills Singapore. Savills Research is predicting office rents to reduce gradually in 2K24 following “record levels of CBD and non-CBD building completions”. Office rental heightening has signals of modulating, with the median monthly rents of the basket of CBD Grade A offices tracked by Savills edging up just 0.1% q-o-q in 3Q2K23 to $9.64 psf. In observation, the basket registered rental development of 0.7% in 2Q2K23.

“Rental figures in 3Q2K23 contribute to the overall vibes that the market has moderated despite a deficiency of new supply throughout the year,” says Ashley Swan, executive director, commercial rental at Savills Singapore. “The persistence economic unsureness, international tensions and high lending rate surroundings have resulted to a series of occupiers halting expansion plans, holding on tight and adopting a ‘wait and see’ approach.”

Nevertheless, Savills is preserving its projected growth of 2% y-o-y for CBD Grade A office rents in 2K23, underpinned by the magnificent depletion in net supply registered in 2K22 that has subsequently impacted the market in 2K23. For the first three quarters of this year, rents have increased by 1.1%.Rents of Grade A offices in Marina Bay, Tanjong Pagar, City Hall and Orchard Road remained unchanged in 3Q2K23. Raffles Place and Shenton Way subsequently saw a 0.1% q-o-q increase in Grade A offices, while the Beach Road-Middle Road area saw sharper quarterly growth of 1.1%, largely due to expensive 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 apprehends the lukewarm sentiment in the office market will remain through 2K24. This will supply to a further reduction in rental market which will, in turn, lead to a reduction in CBD rents, he elaborated. Savills is anticipating CBD Grade A rents to decline 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 soil and the subsequent violent motion may stirs Middle East flashpoints, possibly overturn to the economic realm,” he says.

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