Prime Office Rents Growing More Slowly Occupancy Levels Still Healthy Knight Frank
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According to a recent report by Knight Frank, office rents for prime grade properties in the Raffles Place and Marina Bay area rose by 0.6% in the third quarter of 2024, reaching an average rate of $11.35 per square foot per month. This was a slower growth than the previous quarter’s 0.7% increase.
The overall rental growth for the first nine months of 2024 was 2%, which is lower than the 3.4% growth recorded during the same period last year. This is due to the absence of expansions from major tech companies as they respond to the slowdown in the tech sector and the uncertain economic climate.
Calvin Yeo, managing director of occupier strategy and solutions at Knight Frank Singapore, explains that tech companies are putting their expansion plans on hold and instead opting to downsize their office space. For instance, Facebook’s parent company, Meta, chose not to renew its lease for seven floors at South Beach Tower in September, following global layoffs. Staff were relocated to Meta’s offices at Marina One.
At the same time, some occupiers are choosing to reduce their office space or move to better-quality, smaller spaces to accommodate flexible work arrangements. However, Yeo notes that most occupiers are opting to renew their leases as landlords become more flexible in order to retain occupancies amidst the uncertain economic climate.
As a result, the occupancy level in the CBD remains healthy, with prime offices in Raffles Place and Marina Bay precinct having an occupancy rate of 93.4% in September, slightly lower than the 95% recorded in the previous quarter. The overall CBD occupancy rate stood at 93.5% in 3Q2024, only marginally lower than the 93.6% recorded in the previous quarter.
Smaller space occupiers have been more active in the market so far, with the former Meta space at South Beach Tower being taken up by smaller occupiers. This trend has been observed throughout most of the year, with smaller occupiers accounting for a significant portion of office space take-up.
Some of this demand comes from international companies, such as those in the investment and wealth management sectors, drawn to Singapore’s stability, infrastructure, and position as a gateway city. For instance, in July, US-based electronic trading company Millennium Advisors opened its first Asia Pacific office at Marina Bay Financial Centre Tower 1.
Single-family offices have also contributed to demand, with Singapore recording a total of 1,650 such offices as of August 2024, up from 1,400 at end-2023. While these firms typically occupy small spaces of less than 5,000 sq ft, the volume has contributed to rising boutique demand in the office leasing market.
On the other hand, both domestic and cross-border leasing activity by larger occupiers has been subdued. This is partly due to the uncertain economic environment, but also because there is a lack of large floorplate office space available for companies looking to consolidate their business functions under one roof.
Yeo expects office market dynamics to remain unchanged for the rest of the year, with the domestic market unlikely to see many relocations, except for natural lease expiries by large space users. With prime office rents growing at a relatively flat rate, around 3% for the entire year, Yeo believes that the upcoming supply of office space, such as Labrador Tower and Paya Lebar Green, will not have a significant impact on rental rates.
However, the recent interest rate cuts are expected to give a boost to the services sectors, including finance and insurance, which will support economic growth. Singapore’s economy is projected to expand between 2% and 3% in 2024.
