Singapore’s Office Market Retains Growth Momentum Despite Market Challenges

Sector ends the year with low vacancies and resilient demand.

Singapore, December 14, 2023 -- Despite Singapore's modest GDP growth in 2023, the office market surpassed expectations due to limited supply, increasing back-to-office momentum, and steady absorption of shadow space, according to CBRE.

CBRE continued to observe an upturn in the Core CBD (Grade A) office rents, where gross effective rents increased by 0.4% q-o-q in Q4 2023 to reach S$11.90psf/month, at a similar pace with the last three quarters. For the full year, Core CBD (Grade A) rents grew by 1.7% y-o-y, outpacing the projected GDP growth of 1.0% but at a more modest pace compared to the 8.3% rental growth in 2022. Despite the lack of new supply, Net absorption for Core CBD (Grade A) was a positive 0.10 million sq. ft. in 2023, marking the fourth consecutive year of positive absorption since 2019.

Among Grade A office buildings, vacancies in the Core CBD inched down from 4.2% by end 2022 to 3.5% as at end 2023. Among the wider market, islandwide leasing demand remained resilient with demand from the private wealth asset management and legal sectors, agile space operators, and government agencies in Q4 2023.

David McKellar, CBRE Co-Head of Office Services, Singapore, highlighted, "The vacancy in Core CBD (Grade A) remains tight due to limited supply. This has led some occupiers to renew existing leases at higher reversionary rents rather than relocate, given high capex and interest rates. To improve occupancy, some landlords have embarked on speculative fitout, subdividing the larger spaces, and fitting them out for plug-and-play solutions, which helps to provide flexibility and capex neutrality for potential tenants.”

Selected premium office space with quality specs in the Core CBD were also highly contested among competing tenants, leading to rental escalation. Meanwhile, shadow spaces in prime areas like Marina Bay and Raffles Place attracted occupiers seeking high-quality, fitted office spaces. Some shadow spaces were also taken off the market as tech occupiers decided to retain their office premises. Thus, towards the end of 2023, CBRE observed shadow space, declining from the peak of 0.7 million sq. ft. in Q1 2023 to 0.17 million sq. ft. by Q4 2023. 

According to CBRE Research, Core CBD (Grade A) rents are expected to outperform 2023’s growth of 1.7%, coming in at 2-3% for 2024, along with an improvement in the Singapore economy. That said, CBRE Research is cautiously optimistic of 2024’s outlook as near-term risks such as high interest rates and higher cost remain, which tend to drive renewals rather than relocations or market expansions. 

Tricia Song, CBRE Head of Research, Singapore, and Southeast Asia noted, “The cautious sentiment likely to be observed in the first half of 2024 can also be attributed to a larger incoming supply, when we see an injection of about 2.9 million sq. ft., notably from the delayed completion of IOI Central Boulevard Towers in Core CBD to Keppel South Central in the Fringe CBD, and Labrador Tower and Paya Lebar Green in the Decentralised locations. Rents may pick up more meaningfully in H2 2024 as the global economic recovery gains more traction.”

Mr McKellar urges tenants to move quicky as availability of space will remain tight beyond the one-off injection of supply in 2024.

He advises, “In addition to rental considerations, 2024 will be a year where project and fitout costs remain high and corporates remain capex-constrained, creating difficulty to relocate or implement new workplace strategies that support the post-pandemic environment. Balancing employees' locational preferences, whether in the CBD, fringe, decentralised locations, or remote work, is crucial when bringing them back to the office. This is especially pertinent for firms in pre-pandemic spaces that lack support for hybrid and flexible working. Establishing a clear workplace strategy is essential for occupiers' leasing strategy.”

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2022 revenue). The company has approximately 115,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

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