Record building completion to soften office rents in 2024

Savills expects rents to soften from -2% YoY to -3% YoY.

Office rents are likely to soften to -2% YoY to -3% YoY in 2024 on the back of record levels of building completions in the CBD and non-CBD areas.

“The significant reduction in net supply in 2022 has created a tight market situation whose effects could be felt for 2023 and partially into 2024, hence the rental adjustment is expected in 2024 rather than in 2023,” Savills said.

In a report, Savills said there will be a spike in CBD and non-CBD supply in 2024 from the completion of projects like Central Boulevard and Keppel South Central, and Labrador Tower and Paya Lebar Green, respectively.

“Some landlords may use this time to undertake extensive asset enhancement work for their buildings,” Savills added.

Looking at 3Q23, Savills said office rental growth has slowed with the average monthly rents of CBD Grade A offices in Savills basket inching up marginally for the seventh consecutive quarter, albeit at a moderated pace of 0.1% QoQ, compared to the 0.7% in 2Q23, to S$9.64 psf. 

For the first three quarters of this year, rents have risen by 1.1%.

Meanwhile, vacancy rates of CBD Grade A offices rose in 3Q23 by 0.6 ppt QoQ to 7.1%.

“[The increase] was largely led by the inclusion of Guoco Midtown into the office stock, which brought an increase in vacancy rates of Grade AAA buildings from 5.5% in 2Q23  to 7.2% in 3Q23, marking the fourth consecutive quarter of increase,” Savills said.

In the investment sales front, office transactions declined further, with fewer strata title deals and no block transactions.