According to a recent report by Knight Frank, rents for prime grade offices in the Raffles Place and Marina Bay areas rose by 0.6% compared to the previous quarter in 3Q2024, reaching an average of $11.35 per square foot per month. This growth is slightly slower than the 0.7% increase seen in 2Q2024. However, the overall rental growth for the first nine months of 2024 is at 2%, lower than the 3.4% growth recorded during the same period last year.
The slower increase in rents can be attributed to the absence of expansions by major occupiers, particularly tech companies. Calvin Yeo, managing director of occupier strategy and solutions at Knight Frank Singapore, notes that the tech sector slowdown and uncertain economic climate have led to these companies putting their expansion plans on hold.
Instead, many tech companies have chosen to downsize their office space. For instance, Meta, the parent company of Facebook, did not renew its lease for seven floors at South Beach Tower after global layoffs. The employees working in this tower were relocated to Meta’s offices in Marina One.
Additionally, some occupiers have opted to reduce their office space or move to smaller, higher-quality spaces in response to flexible work arrangements. Yeo notes that these office users are finding ways to enhance the quality and experience of the workplace while using less space.
However, Yeo also points out that a majority of the occupiers in the market are choosing to renew their leases when they expire, leading to healthy occupancy levels in the central business district (CBD). As of September, prime offices in Raffles Place and Marina Bay had an occupancy rate of 93.4%, only slightly lower than the 95% in the previous quarter. The overall CBD occupancy rate stood at 93.5% in 3Q2024, compared to 93.6% in the previous quarter, despite the completion of new office supply at IOI Central Boulevard Towers.
Yeo also observes that while leasing activity among large occupiers has been quiet, the demand for office space has been driven by smaller space occupiers throughout the year. This is partly due to international companies setting up their offices in Singapore, particularly in the investment and wealth management sectors. For example, US-based electronic trading company Millennium Advisors opened its Singapore office at Marina Bay Financial Centre Tower 1 in July.
In addition, the increasing number of single-family offices in Singapore has also contributed to the demand for smaller office spaces. This has led to a rise in boutique demand in the office leasing market.
However, domestic and cross-border leasing activity by larger office occupiers has been subdued, as companies hold off on major decisions due to the uncertain economic environment. Yeo notes that the lack of available large floorplate office space is also hindering movement by occupiers who want to consolidate various business functions under one roof.
Moving forward, Yeo anticipates that the office market dynamics will remain unchanged for the rest of the year. He believes that the office leasing market will not see significant relocation, except for natural lease expiries by large space users. He also expects prime office rents to remain relatively flat, with a 3% growth for the entire year.
Although upcoming office supply could potentially affect the market, such as the 807,293 sq ft Labrador Tower and the 388,879 sq ft Paya Lebar Green, Yeo notes that interest rate cuts should support economic growth in the finance and insurance industries. This, in turn, could lead to higher demand for office space in the future. The Singapore economy is projected to grow between 2% and 3% for the year.
When considering purchasing a condominium as an investment, one must also carefully evaluate its potential rental yield. This refers to the amount of annual rental income as a percentage of the property’s purchase price. In Singapore, rental yields for condos can differ greatly, depending on factors such as location, condition of the property, and market demand. Generally, areas with high rental demand, such as those near business districts or educational institutions, offer better rental yields. It is essential to conduct thorough market research and seek advice from real estate agents to gain valuable insights into the rental potential of a specific condo. Additionally, keeping an eye on new condo launches can provide opportunities for potentially high rental yields.