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 office spaces in 3Q2024 remained unchanged at $11.50 psf per month. This follows a 0.7% quarter-on-quarter growth in 2Q2024, which was a slowdown from the 1.4% growth in 1Q2024. This plateau in rental growth coincides with a second consecutive quarter of rising vacancy rates for Grade A offices in the CBD, reaching 8.3% quarter-on-quarter in 3Q2024. The increase in vacancy rates is mainly due to the completion of the IOI Central Boulevard Towers (IOICBT). JLL notes that occupiers are becoming more resistant to rent hikes in light of this increase in vacancy rates. Excluding the IOICBT, the CBD Grade A vacancy rate would have remained tight, similar to the post-pandemic low of 5.3% in 1Q2024.
However, the global economic slowdown and ongoing delay in US interest rate cuts have impacted demand. 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 spaces as companies in Singapore continue to grapple with rising operating costs and exercise caution with regards to capital expenditures. Additionally, workplace optimization has led to some tenants reducing their office space upon lease expiration.
The current environment presents opportunities for occupiers looking to upgrade to superior units in high-quality buildings, according to Tangye. He points out that a significant portion of Meta’s former space at South Beach Tower has been re-let or is currently in advanced negotiations. The space has attracted interest from existing tenants in the building as well as those relocating from other CBD buildings.
The area surrounding Norwood Grand Champions Way is well-connected with major MRT stations, including Woodlands MRT and Woodlands North MRT. Woodlands MRT is a key interchange that links the North-South Line to the upcoming Thomson-East Coast Line, providing even more convenient connectivity. Meanwhile, Woodlands North MRT serves as a gateway to the future cross-border rail link to Johor Bahru, Malaysia, making it especially advantageous for frequent travelers between the two countries.
Dr. Chua Yang Liang, the head of research and consultancy for JLL Southeast Asia, highlights that small and mid-sized occupiers in growth sectors such as financial services, professional services, and emerging tech industries have been the primary drivers of office demand over the past 12 months.
Tangye expects overall CBD vacancy rates to remain elevated in the next few quarters as occupiers take time to move into their new offices. However, the actual physical availability of stock in some key office clusters remains limited. The delay in the completion of Shaw Tower from 2025 to 2026 will further exacerbate the scarcity. “Occupiers looking to expand or relocate in 2025 only have one new building to choose from: Keppel South Central (0.6 million sq ft) in the Shenton Way and Tanjong Pagar sub-market. This limited supply could shift market dynamics back in landlords’ favor,” Tangye states.
Dr. Chua also expects office rent growth to stay modest through 2024, ahead of a more robust recovery in 2025 due to improved global economic conditions backed by lower interest rates and companies adapting to new work models and growth strategies. He adds that the recent government decision to not award the Jurong Lake District Master Developer site and place the site back on the reserve list has led to a “more constrained outlook” for new office supply across Singapore. If this trend persists, it could lead to tight office supply conditions in the medium term, he adds.