What to expect from Singapore’s office leasing market for the rest of 2024

Savills revised its rental forecast to -1% to +1% for the year.

In a recent report, Savills said that for the first half of 2024, there were few large relocation deals signed and the remaining transactions were for lease renewals. Consequently, the rental market cannot truly be described by what one normally understands it to be, namely comprising rents that tenants signed to move into a building. 

The result of this is a market that leasing professionals are opining is drifting sideways. 

Here’s more from Savills:

As more tenants are now faced with the need to contain costs, they would have preferred to relocate to lower cost accommodation. However, given the high cost of reinstatement works and fit outs, they do not have the budget for that and so choose to renew their leases. If the need to reduce costs is an objective, they would be the right size. 

Landlords, realising their predicament, would hold some form of ransome value over tenants and thus are able to extract some rental increases in the renewed lease. This could summarise why, despite challenging business conditions, rents managed to eke out a 0.2% increase for the period Q4/2023 over Q2/2024.

For the rest of this year, the same leasing market dynamics is expected to be repeated. This means that there would be few large tenants relocating. The rental market would thus continue to be dominated by renewals and given the conditions mentioned above, this has an upside bias on rents. Although there is new supply in the Grade A CBD space, coming from IOI Central Boulevard Towers, because this new building is still asking market rents, the remaining landlords are expected to keep their rents fi rm as well. 

We had a rental projection of -1% to -3% for 2024 in our previous reports. With half a year gone, Grade A CBD office rents had risen 0.2% increase year-to-date, and given the low level of new leasing activity expected for the second half, we have revised our rental forecast to -1% to +1% for 2024.