Office Rents Plateau 3Q2024 Cbd Vacancy Rate Climbs Second Consecutive Quarter Jll
According to data from JLL published on Sept 23, the gross effective rent for CBD Grade A offices in 3Q2024 remained stable at $11.50 per square foot per month (psf pm). This is the same as the previous quarter, where there was a 0.7% q-o-q growth. This marks a slowdown from the 1.4% q-o-q growth in 1Q2024.
The continuous rental growth plateau was in tandem with the second consecutive quarter of rising vacancy rates for Grade A offices in the CBD. In 3Q2024, it reached 8.3% q-o-q. This was mainly due to the completion of the IOI Central Boulevard Towers (IOICBT). According to JLL, there is a growing resistance from occupiers towards rent hikes, which is likely a result of this rise in vacancy rates. However, if we exclude the IOICBT, the CBD Grade A vacancy rate would have remained relatively tight, similar to the post-pandemic low of 5.3% in 1Q2024.
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The demand for office space has been impacted by the global economic slowdown and the ongoing delay in US interest rate cuts. Andrew Tangye, the head of office leasing and advisory at JLL Singapore, notes that there has been a decrease in the net take-up of office space. This is due to companies in Singapore facing a rise in operating costs and adopting a cautious approach towards capital expenditures. Additionally, workplace optimization has led to some tenants reducing their office space upon the expiry of their leases.
However, this environment presents opportunities for occupiers looking to upgrade to premium units in high-quality buildings, according to Tangye. He also adds that a significant portion of Meta’s former space at South Beach Tower has been re-let or is in advanced negotiations. This has attracted interest from both existing occupants in the building and tenants relocating from other CBD buildings.
Dr Chua Yang Liang, the head of research and consultancy for JLL Southeast Asia, highlights that the demand for office space over the past 12 months has been primarily driven by small and mid-sized occupiers in growth sectors such as financial services, professional services, and emerging tech industries.
Tangye predicts that the overall CBD vacancy rates will remain elevated in the next few quarters as occupiers take time to move into their new offices. However, there is limited stock availability in key office clusters. Furthermore, the delay in the completion of Shaw Tower from 2025 to 2026 will further aggravate the scarcity of office space. He adds that there is only one new building, Keppel South Central (0.6 million sq ft), available for occupiers looking to expand or relocate in 2025. This limited supply could potentially shift market dynamics back in landlords’ favor.
Dr Chua also anticipates that office rent growth will remain modest through 2024 but is expected to pick up in 2025 due to improved global economic conditions, lower interest rates, and companies adapting to new work models and growth strategies. He also mentions that the government’s recent decision not to award the Jurong Lake District Master Developer site and place it back on the reserve list has led to a more constrained outlook for new office supply in Singapore. If this trend continues, it could result in a tight office supply market in the medium term.