Singapore office rentals remained resilient at elevated levels, and inched up further to S$11.85, contrary to market expectations; we believe rents could remain resilient given tight supply. Contrary to market expectations, 3Q23 CBRE Grade A Core CBD office rents continued to inch up to S$11.85psf/mth (vs. S$11.80psf/mth in 2Q23), pushing peak rents upwards since its record high in 2008. The rents were mainly held up by the delay in the completion of IOI Central Boulevard Tower. Despite the high rents, flight to quality remains and tenants still prefer good-quality office buildings at Core CBD. We believe the high rents could continue to hold steady, as supply will remain tight for the next few years, despite headwinds from slowing economic growth. 

3Q23 saw increased leasing activity in Grade A Core CBD, driving vacancy rate below 3% and halving shadow space; hopeful that business activity will return when interest rates stabilise alongside stronger economic growth. Most property consultants reported improved net absorption in Grade A Core CBD in 3Q23, at almost double that of 1H23, driving the vacancy rate close to 3%. In addition, shadow space has tapered off this quarter, having halved to 330k sqft vs. the record high of 700k sqft in 1Q23. Economic headwinds and uncertainty going into 2024 continue to weigh on overall office demand. However, we are hopeful that businesses/corporations that previously “paused” their business decisions amidst market uncertainty in 2023 will start making longer term business decisions when interest rates start to stabilise and economic growth returns. DBS economists expect Singapore GDP growth to double from a low of 0.9% in FY23F to 2.2% in FY24F. Despite the lofty rents, flight to quality remains and will likely sustain rents, given the tightness in good-quality supply. As such, we continue to believe that Grade A Core CBD rents could remain more resilient than expected despite slower economic growth.      

Remain watchful when ICBT is completed, but believe the market can absorb the supply over a two-year period on conservative demand assumptions. The completion and occupancy level of the only new upcoming supply, IOI Central Boulevard Tower (ICBT), remain the key datapoints to watch for in 2024. Pre-commitment remains at close to 50%, just a little lower than the desired level. However, based on our estimates, the market is able to absorb the supply over a two-year period on below historically average demand assumptions. As such, we believe rents may remain more resilient than expected. We remain watchful for a potential rise in shadow space should the economic outlook worsen; it appears to still be at manageable levels.

 
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Rachel TAN Lih Rui
[email protected]
+65 668 23713

Derek TAN Weixiang
[email protected]
+65 668 23716