Office Rents Slip 03 Q O Q 2Q2025 Wiping Out Gains Previous Quarter
According to the latest statistics released by the URA on July 25, overall office rents in Singapore experienced a slight decline of 0.3% q-o-q in 2Q2025, reversing the marginal 0.3% increase recorded in the first quarter of the year.
Compared to the same period last year, the rental performance of the office market saw a decrease of 1.4%, marking the first annual decline since 3Q2021. Leonard Tay, head of research at Knight Frank Singapore, notes that the first half of this year saw a trend of rent stabilisation in the office market, where most tenants chose to renew their leases instead of expanding or relocating due to high office fit-out costs.
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In the Downtown Core and Orchard Road Planning area, office rents saw a significant decrease of 3.2% q-o-q to $11.68 psf/pm in 2Q2025, down from $12.07 psf/pm in the previous quarter. This decline can be attributed to a slight improvement in vacancy rates, largely due to the strong take-up rate at IOI Central Boulevard Towers, which is currently about 85% leased.
On the other hand, office rents in submarkets outside of the Downtown Core and Orchard Road saw a third consecutive quarterly increase, with median rents rising by 2.7% q-o-q in 2Q2025, following a 1% q-o-q increase in 1Q2025. Tricia Song, head of research, Southeast Asia at CBRE, attributes these opposite rental movements to cautious sentiment among tenants and landlords amidst the ongoing macroeconomic uncertainty. She adds that cost-efficient buildings are gaining popularity among tenants.
CBRE Research reports that core Grade A office rents have increased by 1.3% in the first six months of this year, defying concerns that global economic headwinds would dampen rental gains. The firm projects that office rents may increase by 2%-3% for the entire year. Tay adds that most landlords are focused on maintaining high occupancy levels, which is why office rents have not seen significant increases, especially in high-quality Grade A buildings.
In 2Q2025, islandwide office occupancy saw a slight improvement of 0.3 percentage points to 88.6%, compared to 88.3% in the previous quarter. However, this figure is lower than the 89.2% occupancy rate recorded in 2Q2024. Catharine He, head of research, Singapore at Colliers, notes that to support occupancy rates, some landlords have started offering smaller spaces to rent, or providing incentives to bridge gaps in rental expectations. She points out that these strategies have been successful in driving take-up rates in new developments like IOI Central Boulevard, which is almost fully occupied.
While larger corporations are unlikely to relocate in the near future, Tay mentions that smaller and medium-sized companies may make selective moves to higher-quality spaces to take advantage of the current rental environment. He adds that corporate real estate managers are now focusing on flexible work arrangements that can support business disruptions without affecting operations.
Echoing this sentiment, He says that businesses are likely to delay leasing decisions until there is more clarity on the US-China trade war and monetary policies in key economies.
Looking ahead, the supply of new office space is expected to remain relatively low until 2028 when about 3.08 million sq ft is set to enter the market. He predicts that vacancy rates will tighten over the next two years, creating a favourable investment environment amidst falling interest rates.
Additionally, He notes that the recent extension of the CBD Incentive scheme and Strategic Development Incentive scheme suggests that some office supply may be converted into mixed-use developments, further solidifying the conducive investment environment.
