Singapore office vacancy rate hits record low in over 7 years

Vacancy rates in the Central region fell to 9.3% in Q1.

The URA's office property rental index in Singapore’s Central Region recorded a 1.7% q-o-q decline in 1Q24, marking its first decrease in 10 quarters. 

This could be considered a temporary anomaly in the market according to JLL, potentially influenced by the cautious sentiments prevalent among occupiers in 2023, which may have carried over into the beginning of this year.

Here’s more from JLL:

JLL had started to notice a weakening in occupier sentiments around 2Q23. This was driven by a downcast global economic outlook at the beginning of 2023 brought about geopolitical tensions and a high interest rate environment. Consequently, occupiers became cautious, leading many corporate entities to postpone their expansion and relocation plans as a measure to control costs. The average monthly gross effective rent for the basket of CBD Grade A offices tracked by JLL flattened out in 2Q23 and fell by a modest 0.5% in 2H23.

Nonetheless, fundamentals in the Singapore office property market remain healthy. According to URA’s data, vacancy rates of offices in the Central Region fell to 9.3% in 1Q24, its tightest level in more than seven years. Among the various planning areas within the Central Region, the Orchard Planning Area stands out with the lowest vacancy rate at 7.1% during the quarter. This can be attributed to robust demand exhibited by companies in the consumer goods sector, which is experiencing a resurgence following the recovery in the tourism industry post-pandemic.

On the whole, JLL had observed a healthy level of leasing enquiries in 1Q24 compared to the previous quarter. Beside companies from the consumer goods sector, they also hail from the professional and financial services sectors. However, the majority of these enquiries were from small and medium-sized occupiers who showed a preference for newer and better-quality buildings.

With JLL’s average vacancy rate for Grade A office properties in the CBD reaching a new post-COVID low in 1Q24, our CBD Grade A office rents turned around during the quarter and climbed to a 15-year high. This is driven by increased competition among small and medium-sized occupiers, who were willing and able to offer higher bids to secure their preferred spaces in quality buildings.

Outlook brightens as the economy begins to show signs of revival

Barring the occurrence of external risks that could disrupt Singapore's economic recovery, the demand for office space is projected to gain strength in the coming quarters. This can be attributed to pent-up demand from occupiers who postponed their relocation or expansion plans. This should support ongoing rent increases for the rest of 2024.

However, considering the challenges posed by the investment-restricting, high interest rate environment and the significant office pipeline over the next 12 to 24 months that still needs to secure tenants, rent growth for the full year 2024 is expected to remain moderate. Key developments in the CBD include IOI Central Boulevard Towers (1.3 million sq ft), which received its partial Temporary Occupation Permit in April 2024, along with Keppel South Central (0.6 million sq ft) and the redeveloped Shaw Tower (0.4 million sq ft) anticipated to be completed in 2025. With over 1.5 million sq ft of spaces in these new projects still available for tenants seeking flight to quality options, marketing activities for these projects have stepped up in recent months.