Office Rents And Prices Recover 31 Q O Q 2Q2024 Pipeline Supply Drop
Plot ratio for prime office site on Robinson Road halved to 15 – 17 2Q2024, office, prices, Singapore, recovery, rents, Colliers, Catherine He, high-value deals, Solitaire on Cecil, Suntec City, Suntec Tower 1, flight to quality, Grade A office rents, CBD, IOI Central Boulevard Towers, Keppel South Central, Shaw Tower, uncommitted spaces, backfill, corporate restructuring, JLL, near-term supply pressures, counterbalance, asset positioning, enhancement, rejuvenation incentives, urban planners, ASEAN growth story
The office market in Singapore is showing indications of recovery as overall prices have increased by 3.1% quarter-on-quarter (q-o-q) in the second quarter (2Q) of 2024. This marks a reversal from the 1.2% decline in the previous quarter. Similarly, rents have also seen a 3.1% q-o-q increase, reversing the 1.7% fall in 1Q2024. However, the marketwide occupancy rates have dipped by 1.2% q-o-q, from 90.4% in 1Q2024 to 89.2% in 2Q2024.
According to Catherine He, the head of research at Colliers Singapore, the rise in prices can be attributed to several high-value deals that have taken place in the last three months. One of these deals was the sale of a 12,465 sq ft strata floor on the ninth floor of the freehold office development Solitaire on Cecil. It fetched a price of $51.48 million, or $4,130 psqft. Additionally, several floors at Suntec City were also sold, with the most expensive transaction being a 3,078 sq ft unit in Suntec Tower 1 which sold for $11.5 million, or $3,736 psqft, on June 20.
Moreover, there have been other significant transactions such as the sale of 30 Prinsep Street for $147 million, or approximately $3,000 psqft, and Wilmer Place at 50 Armenian Street for $26.5 million, or $3,464 psqft. These deals highlight the demand for office assets in Singapore, as private investors seem relatively unaffected by the high interest rate environment.
The trend of companies shifting to higher-quality spaces in the face of macroeconomic conditions has led to a 4% q-o-q growth in Grade A office rents in 2Q2024, following a 1.3% dip in 1Q2024. Wong Xian Yang, the head of research at Cushman & Wakefield (C&W), attributes this to the continued flight to quality since the beginning of the year. As larger occupiers face capital constraints, they have chosen to renew their leases rather than relocate, which has allowed landlords to push for higher rents.
Wong further suggests that if the flight to quality trend persists and with the growing investment interest in Southeast Asia from wealth management and tech firms, office demand may pick up in the second half of 2024. Meanwhile, rents for offices outside the central business district (CBD) have seen a higher q-o-q recovery with a 5.9% increase. However, vacancy rates have also risen by 0.8% q-o-q, reaching 11.1% in 2Q2024 from 10.3% in 1Q2024.
The quarter also saw a net supply increase of around 936,000 sq ft of new office space, which accounts for 1.1% of the total supply. This is mainly due to the addition of IOI Central Boulevard Towers, a multi-billion-dollar commercial development with 1.26 million sq ft of Grade-A office space. Tricia Song, the head of research at CBRE, states that the significant influx of supply is primarily due to this development.
According to Chua Yang Liang, the head of research and consultancy for Southeast Asia at JLL, the supply over the next 12 to 18 months remains significant, with Keppel South Central and the redeveloped Shaw Tower set to be completed in 2025, adding another 0.6 million sq ft and 0.4 million sq ft of office space, respectively. Additionally, with the uncommitted spaces at IOI Central Boulevard Towers, there could be over 1.5 million sq ft of new high-quality office space competing for occupiers.
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Apart from this, the office market is also facing the challenge of backfilling the spaces that some larger floorplate occupiers plan to relinquish as part of their corporate restructuring. Examples of this include Meta’s space at South Beach Tower, which is expiring in September this year, and BNP Paribas’s space at Ocean Financial Centre, when their lease expires at the end of this year.
The recent rebound in rents is also supported by JLL research which shows that the gross effective rent for CBD Grade-A office space is still increasing, although at a slower pace. The rental growth has decelerated from 1.4% q-o-q in 1Q2024 to 0.7% q-o-q in 2Q2024. This comes after two consecutive quarters of rental contraction in 1Q2024.
Moreover, the rents for Grade-A offices in the CBD have climbed to $11.50 psqft per month in 2Q2024, which is 25% lower than the historical peak of $15.27 psqft per month recorded in 2Q2008.
According to JLL’s Chua, the primary challenge faced by the Singapore office market is the need to navigate the near-term supply pressures. These pressures counterbalance the increasing rent expectations of landlords in buildings with high occupancy rates, keeping the rent growth modest for the remainder of the year. However, there is an opportunity for asset positioning and enhancement in older and functionally obsolete stock. Furthermore, the demand from firms looking to capitalize on the ASEAN growth story is expected to increase, encouraged by the rejuvenation incentives introduced by urban planners.