In the third quarter of 2024, gross effective rent for Grade A offices in Singapore’s Central Business District (CBD) remained steady at $11.50 per square foot per month (psf pm), according to data released on Sept 23 by global property consultancy JLL. This follows a slight increase of 0.7% quarter-on-quarter (q-o-q) in the second quarter, marking a slowdown from the 1.4% q-o-q growth in the first quarter of 2024.The plateau in rental growth coincides with a second consecutive quarter of rising vacancy rates for Grade A offices in the CBD, which reached 8.3% q-o-q in the third quarter of 2024. This increase is largely due to the completion of the IOI Central Boulevard Towers (IOICBT). JLL notes that tenants are becoming more resistant to rent hikes as vacancy rates continue to rise. Excluding the IOICBT, the vacancy rate for Grade A offices in the CBD would have remained relatively tight, similar to the post-pandemic low of 5.3% in the first quarter of 2024.The decline in demand can be attributed to the global economic slowdown and the ongoing delay in US interest rate cuts. According to Andrew Tangye, head of office leasing and advisory at JLL Singapore, there has been a decrease in net take-up of office space as companies in Singapore face rising operating costs and exercise caution in terms of capital expenditures. In addition, the trend of workplace optimisation has resulted in some tenants downsizing their office space upon lease expiration.This current market environment presents opportunities for occupiers looking to upgrade to higher quality units in premium buildings, Tangye points out. For instance, a significant portion of the former office space occupied by Meta at South Beach Tower has already been re-let or is currently in advanced negotiations, attracting interest from both existing tenants in the building and those relocating from other CBD buildings.Dr Chua Yang Liang, head of research and consultancy for JLL Southeast Asia, highlights that over the past 12 months, demand for office space has primarily been driven by small and mid-sized occupiers in growth sectors such as financial services, professional services, and emerging tech industries.Tangye predicts that overall vacancy rates in the CBD will remain elevated over the next few quarters as occupiers take time to move into their new offices. However, there is still limited stock availability in certain key office clusters despite the increase in vacancy rates.The postponement of Shaw Tower’s completion from 2025 to 2026 will further exacerbate the scarcity of office space. “Occupiers looking to expand or relocate in 2025 will only have one new building to choose from – Keppel South Central, which offers 0.6 million sq ft of office space in the Shenton Way and Tanjong Pagar sub-market. This limited supply could shift market dynamics back in favour of landlords,” Tangye adds.Dr Chua also expects office rental growth to remain modest through 2024, before picking up in 2025 due to the improved global economic conditions, driven by lower interest rates and companies adapting to new work models and growth strategies.He also notes that the recent decision by the government not to award the Jurong Lake District Master Developer site and to place it back on the reserve list has led to a “more constrained outlook” for new office supply in Singapore. If this trend continues, it could lead to tight office supply conditions in the medium term, he adds.
When contemplating an investment in a condominium, it is crucial to also evaluate its potential rental yield. Rental yield refers to the annual rental income as a percentage of the property’s purchase price. In Singapore, the rental yields for condominiums can vary significantly depending on factors such as location, property condition, and market demand. Areas with high demand for rentals, such as those near business districts or educational institutions, typically offer more attractive rental yields. Conducting thorough market research and seeking guidance from real estate agents can provide valuable insights into the rental potential of a specific condominium. For more information on current and upcoming condominium projects in Singapore, visit Singapore Projects.