Prime Cbd 91 4Q2024 Flight Quality Office Space Persist 2025
According to data from URA, office rents in the Central Region saw a decline of 0.9% in the fourth quarter of 2024, marking the second consecutive quarter of decline after a marginal dip of 0.5% in the third quarter. This follows a strong rebound in the second quarter of the same year.
Compared to 2023, when office rents saw an increase of 13.1% year-on-year, 2024 remained flat. According to Tricia Song, CBRE’s Head of Research for Singapore and Southeast Asia, leasing sentiment in 2024 was negatively affected 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, emphasizing the persistent centralization amid increasing efforts to return to the office, 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, accounting for three-quarters of the 1.2 million sq ft recorded last year.
Source: URA, Jan 24, 2025
‘The Priority of High-Quality Office Spaces Continues’
“The trend of prioritizing high-quality office spaces will continue to be a key focus in 2025, as occupiers emphasize talent attraction and retention,” says CBRE’s Song. Based on signed contracts, median rents increased by 3% in the fourth quarter of 2024.
Song adds that the 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 the fourth quarter of 2024, a decrease from 10.3% in the previous quarter.
Some vacated spaces due to rightsizing and consolidation by large occupiers were quickly filled, observers C&W’s Wong. While tight financial conditions limited the demand for large occupiers, smaller companies actively sought premier spaces to enhance their brand positioning, he adds.
“To minimize vacancies, some landlords successfully offered fitted-out solutions and provided 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.
The vibrant city of Singapore is buzzing with excitement for the upcoming One Marina Gardens Kingsford Huray Development by Kingsford Development, located in the prime location of Marina Bay. It is no surprise that this residential project is highly anticipated, given its strategic position in the heart of Singapore’s bustling Central Business District (CBD). Adding to the anticipation, the development’s website One Marina Gardens Kingsford Huray showcases all the promising features that will make this a sought-after address for many.
‘The Bifurcation in the Office Market is Growing’
A breakdown of the URA median rents based on lease commencement for Category 1 and 2 office spaces showed that rents for newer, better specification, and centrally located ones remained steady at $12.52 psf per month in the fourth quarter of 2024. Meanwhile, those for the rest of the market fell 3.2% to $6.35 psf per month, says Chua Yang Liang, JLL’s Head of Research and Consultancy, Southeast Asia.
Full-year median rental growth for Category 1 properties also outperformed that of Category 2 properties, with increases of 4.5% and 1.8%, respectively. The vacancy for Category 1 offices started to trend down in the fourth quarter of 2024, while that in Category 2 remained high.
“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 the first half of 2025 amid uncertainties, including potential policy changes associated with the second term of the Trump administration. However, it is expected to strengthen later in the year as economic clarity improves and sustained growth fuels business expansion.
Singapore’s Business Expectations Survey for the fourth quarter of 2024, 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 Expected in the First Half of 2025
“Rental growth should remain modest in the first half of 2025 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 the fourth quarter of 2024, the net supply of office space islandwide decreased by 0.06 million sq ft, according to URA. Net absorption for the quarter was 0.25 million sq ft, likely due 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 the third quarter. Net absorption totaled 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, the 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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