Office Rents And Prices Recover 31 Q O Q 2Q2024 Pipeline Supply Drop

The Singapore office market is showing signs of recovery in the second quarter, with rents and prices both experiencing a healthy uptick. According to recent data from Colliers Singapore, office prices in the city-state rose by 3.1% quarter-on-quarter, reversing a 1.2% drop in the first quarter of 2024. Similarly, rents also saw a 3.1% quarter-on-quarter increase, rebounding from a 1.7% decline in the previous quarter. Vacancy rates, however, did experience a slight dip, falling 1.2% quarter-on-quarter from 90.4% in the first quarter of 2024 to 89.2% in the second quarter.Catherine He, head of research at Colliers Singapore, attributes the rise in prices to several high-value transactions that took place in the last three months. One notable deal was the sale of a 12,465 square feet strata floor on the ninth floor of the freehold office development Solitaire on Cecil for $51.48 million, or $4,130 per square foot. Additionally, multiple floors at Suntec City were also bought, with the most expensive transaction reaching a price per square foot of $3,736 for a 3,078 square feet unit in Suntec Tower 1 sold on June 20. Furthermore, there were also notable sales of 30 Prinsep Street for $147 million, or $3,000 psf, and Wilmer Place at 50 Armenian Street for $26.5 million, or $3,464 psf. He believes these transactions demonstrate the continued demand for office assets in Singapore by private investors who are seemingly unfazed by the current high interest rate environment.The trend of companies seeking higher-quality office spaces has led to a 4% quarter-on-quarter increase in Grade A office rents in the second quarter, despite a 2.2% increase in vacancy rates to 10.1%. Wong Xian Yang, head of research at Cushman & Wakefield (C&W), believes this is due to the ongoing flight to quality trend that has been observed since the beginning of the year. As larger occupiers face limitations in their capital expenditures due to macroeconomic conditions, they tend to renew their leases instead of relocating. This has given landlords the opportunity to push for higher rents. Wong predicts that if the trend of companies opting for higher-quality spaces continues, coupled with growing investment interest in Southeast Asia from wealth management and tech firms, the office demand may see a surge in the second half of 2024.Outside of the Central Business District (CBD), there was a more significant quarter-on-quarter recovery of 5.9% in office rents, but a smaller increase in vacancy rates, which rose 0.8% to 11.1% in the second quarter of 2024 from 10.3% in the first quarter. Tricia Song, head of research at CBRE, attributes this increase to the new office space provided by IOI Central Boulevard Towers, a multi-billion-dollar commercial development with 1.26 million square feet of Grade-A office space. Song also notes that supply will remain significant over the next 12 to 18 months, with the upcoming completion of Keppel South Central (0.6 million sq ft) and the redeveloped Shaw Tower (0.4 million sq ft) in 2025. When accounting for the uncommitted spaces at IOI Central Boulevard Towers, there could be over 1.5 million square feet of new quality office space vying for occupiers’ attention.The office market is also facing the challenge of filling in the space vacated by larger occupiers due to corporate restructuring. This includes the vacated space at South Beach Tower by Meta, expiring in September this year, as well as BNP Paribas’s space at Ocean Financial Centre when their lease ends this year’s end. The recent rise in rental rates is also in line with JLL research data, which shows that gross effective rent for CBD Grade-A space is still growing, albeit at a slower pace of 0.7% quarter-on-quarter in the second quarter of 2024, down from the 1.4% quarter-on-quarter increase in the first quarter. This slower growth in rental rates followed two consecutive quarters of rental declines in the first quarter of 2024.CBD Grade-A rents reached $11.50 per square foot per month in the second quarter of 2024, which is 25% lower than the all-time peak of $15.27 per square foot per month recorded in the second quarter of 2008. JLL’s head of research and consultancy for Southeast Asia, Chua Yang Liang, states that the primary challenge for the Singapore office market is managing the supply pressures in the near term. These pressures act as a counterbalance to the rent expectations of landlords in buildings with high occupancy rates, resulting in modest rent growth for the remainder of the year. However, older and functionally obsolete office spaces still have the potential for asset positioning and enhancement. The demand from companies seeking to tap on the growth opportunities in ASEAN is further incentivised by the rejuvenation initiatives introduced by urban planners.

The Urban Redevelopment Authority (URA) is making strides to rejuvenate the area of Lentor through improvements in its transportation infrastructure. This includes the construction of new roads and the enhancement of existing ones, as well as implementing more efficient public transportation options. Among them is the addition of the revolutionary Lentor MRT station, which is now a part of the Thomson-East Coast Line. This station serves as a vital connection point, greatly enhancing the connectivity within the area and making it easier for residents of Thomson Modern and the upcoming Tampines Street 62 EC to travel to and from various parts of Singapore. Such developments make this location an even more appealing choice for potential residents. Furthermore, the upcoming Tampines Street 62 EC will have the added convenience of being seamlessly linked to the Lentor MRT station, providing its future residents with effortless transportation options.