SENTIMENT in Singapore’s prime office market was mixed in the third quarter of this year, even as rents inched up amid economic uncertainties. 

Data from Savills showed that the average monthly rent for Grade-A offices in the Central Business District (CBD) was up for the seventh consecutive quarter in Q3, though the growth moderated to just 0.1 per cent quarter on quarter to S$9.64 per square foot per month (psf pm). 

Rents had risen 0.7 per cent in Q2, putting prime office rental growth at 1.1 per cent for the first three quarters of 2023. 

Only rents in Raffles Place, Shenton Way and Beach Road/Middle Road grew in the third quarter – by 0.1 per cent for Raffles Place and Shenton Way to S$9.98 psf pm and SS$8.94 psf pm, respectively, and by 1.1 per cent for Beach Road/Middle Road to $8 psf pm. 

Rents of Grade-A offices in Marina Bay, Tanjong Pagar, City Hall and Orchard Road were unchanged in Q3. 

A report by Knight Frank said prime-grade office rents in the Raffles Place and Marina Bay precincts climbed 0.8 per cent quarter on quarter, and by 5.1 per cent year on year, to an average of S$11.05 psf pm in Q3.

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Occupancy levels in the area remained “healthy” at 96 per cent, higher than the 94.4 per cent for the CBD overall. The trend was similar in the previous quarter, when the Raffles Place and Marina Bay precincts clocked 95.8 per cent occupancy, and the wider CBD, 94.1 per cent. 

Savills said in its report on Thursday (Oct 19): “The office market is presently insulated from inclement economic conditions. That Grade-A rents could still eke out a small increase of 0.1 per cent quarter on quarter is due to few major lease expiries and a market that only saw a modest new supply of prime space.” 

The consultancy also noted that the total net supply of CBD offices of all grades was down by 969,000 square feet (sq ft) in 2022. The tight market situation gave landlords the confidence to ask for higher rents, even as net supply turned positive in the first half of 2023, with 172,000 sq ft added. 

Calvin Yeo, Knight Frank managing director of occupier strategy and solutions, said: “Despite the soft economy, many businesses continued to renew their leases, supporting the healthy occupancy levels in the office sector.”

This is because the office remains a “relevant focal point for workplace productivity”, and some companies choose to renew their rental contracts for cost efficiencies, over relocating, said Knight Frank. 

Since office inventory in the CBD is expected to remain fairly flat till 2024, Knight Frank predicts that occupancy levels will stay firm with “very marginal rental upside”. Rents are forecasted to grow 3 per cent to 5 per cent for the whole of 2023, it said. 

Savills, on the other hand, believes confidence may wane, with new supply coming onstream in 2024. 

Within the CBD, for instance, IOI Central Boulevard Towers and Keppel South Central will be completed next year. Outside the CBD, SP Group’s Labrador Tower, and Certis and Lendlease’s Paya Lebar Green will also add to the supply. 

Historically, rents in prime areas have tended to fall ahead of building completions in both CBD and non-CBD areas, the consultancy pointed out.

“If this behaviour continues, we may expect to see rents soften in 2024, because the CBD and non-CBD completions are at record levels,” it said. 

“The continued economic uncertainty, global tensions and high-interest-rate environment have led to a host of occupiers delaying expansion plans, sitting tight and adopting a ‘wait-and-see’ approach,” added Ashley Swan, executive director of commercial leasing at Savills. 

“We expect these sentiments to remain through 2024 and contribute further to the slowdown in leasing activity, which in turn will lead to a decline in CBD rents in 2024.”

Grade-A office rents in the CBD are predicted to grow some 2 per cent this year, said Savills, fall by 2 per cent to 3 per cent in 2024 and then stay flat in 2025. The Savills report said: “Given the fact that the market is dynamic, some landlords may use this time to undertake extensive asset enhancement work.”