According to URA data, office rents in the Central Region eased 0.9% q-o-q in 4Q2024. It’s the second consecutive quarter of decline after a marginal dip of 0.5% q-o-q in 3Q2024, following a strong rebound in 2Q2024.
In 2024, office rents remained flat compared with a 13.1% y-o-y increase in 2023. According to Tricia Song, CBRE head of research for Singapore and Southeast Asia, leasing sentiment in 2024 was dampened by high fit-out costs, workplace transformations and ongoing hybrid work arrangements.
The market also faced a supply overhang last year, mainly due to the completion of IOI Central Boulevard Towers, which added 1.2 million sq ft of prime office space in the CBD, notes Song.
Despite a slowdown, the Downtown Core remains the main driver of office net demand, underscoring persistent centralisation amid rising return-to-office efforts, says Wong Xian Yang, head of research for Singapore and Southeast Asia at Cushman & Wakefield (C&W). He adds that Downtown Core office net demand reached 0.9 million sq ft in 2024, about three-quarters of the 1.2 million sq ft recorded last year.
Source: URA, Jan 24, 2025
‘Prioritising high-quality office space’
“The trend of prioritising high-quality office spaces will continue to be a key focus in 2025, as occupiers emphasise talent attraction and retention,” says CBRE’s Song. Based on contracts signed, median rents increased by 3% q-o-q in 4Q2024.
Song adds that a flight to quality has resulted in a notable improvement in vacancy rates for premium CBD spaces. The vacancy rate for prime CBD office space, particularly Category 1 office buildings, stood at 9.1% in 4Q2024, down from 10.3% in the previous quarter.
Some vacated spaces from rightsizing and consolidation by large occupiers were quickly backfilled, observes C&W’s Wong. While tight financial conditions limited large occupier demand, smaller companies actively sought premier spaces to enhance brand positioning, he adds.
“To minimise vacancies, some landlords successfully offered fitted-out solutions and provided capex [capital expenditure] contributions for fit-outs or subdivided spaces to accommodate smaller tenants,” adds Wong.
CBRE’s Song notes that leasing activity was highest among firms in the banking, finance, tech, insurance, and legal sectors. These firms preferred to relocate to high-quality buildings in prime city centre locations, she notes.
‘Bifurcation in the office market to broaden’
A breakdown in the URA median rents based on lease commencement for Categories 1 and 2 office spaces showed that rents for the newer, better specification and centrally located ones held firm in 4Q2024 at $12.52 psf per month. Meanwhile, those in the rest of the market fell 3.2% q-o-q to $6.35 psf per month, says Chua Yang Liang, JLL head of research & consultancy, Southeast Asia.
Full-year median rental growth for Category 1 properties also outperformed that for Category 2 properties, with increases of 4.5% and 1.8%, respectively. Vacancy for Category 1 offices started to trend down in 4Q2024, while that in Category 2 stayed elevated.
“The bifurcation of the office market has broadened, led by the rental decline in lower-grade stock,” says Chua. He adds that occupiers’ continual gravitation towards better-quality spaces has further intensified this trend.
JLL notes that occupier demand is expected to remain modest in 1H2025 amid uncertainties, including potential policy changes associated with the Trump 2.0 administration. However, it should strengthen later in the year as economic clarity improves and sustained growth fuels business expansion.
Singapore’s 4Q2024 Business Expectations Survey released by the Singapore Department of Statistics also noted that business expectations among firms in Singapore’s services sector remained positive for the six months from October 2024 to March 2025.
Source: URA
Modest rental growth in 1H2025
“Rental growth should stay modest in 1H2025 but may accelerate thereafter as sustained economic growth spurs demand from tenants who previously deferred relocation or expansion plans,” says JLL’s Chua.
CBRE’s Song projects that prime CBD rents will grow by a modest rate of about 2% in 2025, supported by limited medium-term supply and a continued flight to quality.
With no major completions in 4Q2024, the net supply of office space islandwide declined by 0.06 million sq ft, noted URA. Net absorption for the quarter was 0.25 million sq ft, likely attributable to the physical occupancy of new buildings completed earlier in the year, such as IOI Central Boulevard Towers and Labrador Tower, says CBRE’s Song.
Islandwide vacancy decreased to 10.6% at the end of 2024 from 11.0% in 3Q2024. Net absorption totalled 0.12 million sq ft for the entire year, compared to 0.89 million sq ft in 2023. The low net absorption figures were likely due to the removal of office stock with the redevelopment of the former Singtel Comcentre, Central Square, and Central Mall.
“With IOI Central Boulevard Towers being the latest development and no significant new supply expected in the prime Grade A Core CBD area for the next three years, vacancy in this submarket ought to remain tight as the overhang of space is largely being absorbed,” says CBRE’s Song. “This could imply limited options for occupiers keen to expand or move into this segment.”
Source: URA
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