THIRD-QUARTER Grade A office rents in Singapore’s central business district (CBD) fell 0.3 per cent quarter on quarter, as demand for office space softened with economic uncertainty, according to a report by JLL Singapore.

Prime office rents in Q3 weakened to S$11.29 per square foot (psf) per month from S$11.32 psf per month in Q2, ending nine straight quarters of growth spurred by the post-pandemic return-to-office wave, JLL said on Monday (Sep 25). 

Tay Huey Ying, head of research and consultancy at JLL Singapore, noted that correction in office rents became more prevalent in the third quarter, as demand weakened and office stock increased. 

“Our analysis shows that more than 15 assets commanded lower rents in Q3 2023 than in Q2 2023, which dragged down the average rents for CBD Grade A space for the first time since they turned around in Q2 2021,” she said.

JLL head of office leasing and advisory Andrew Tangye added that slowing economic growth, together with geopolitical tensions and soaring prices, have kept occupiers “wary and cost-conscious”. 

This resulted in a weaker take-up of office space, he said. “At the same time, office stock is being returned to the market at an increasing pace as more occupiers opt to right-size upon lease renewal to manage costs.” 

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CBRE, meanwhile, was more sanguine in its comments released on Monday, saying leasing activity in the core CBD – comprising Raffles Place, Marina Bay, Marina Centre and Shenton Way – picked up among Grade A buildings. Net absorption was 0.11* million sq ft in Q3, compared to the first half of 2023 which saw a net absorption of around 30,000 sq ft. 

According to CBRE, gross effective rents for this market rose 0.4 per cent quarter on quarter to S$11.85 psf per month in Q3. This was a similar pace to the last two quarters as vacancy levels fell to 3.2 per cent, from 4 per cent in Q2, said CBRE. 

Total shadow space halved to 0.33 million sq ft in Q3, from the record high of 0.7 million sq ft in Q1, CBRE found. Shadow space is the excess space on an existing lease obligation that a tenant would like to give up by finding a replacement tenant for the landlord. 

Some of these spaces have been taken up by occupiers in the co-working and asset management business, who have seized the opportunity to move into “fitted office spaces in the prime Marina Bay and Raffles Place areas”, said David McKellar, CBRE co-head of office services. 

“Increased office usage has likely also contributed to this heightened demand for space that we are experiencing,” he said. 

CBD office projects that are scheduled for completion in the next two years include mixed-use development IOI Central Boulevard Towers, with 1.3 million square feet of office space in the Marina Bay area; the 33-storey Keppel South Central on the former site of Keppel Towers, with around 600,000 sq ft of space; and the redeveloped Shaw Tower, with around 450,000 sq ft of office space.

So far, multinational tech giant Amazon and investment bank Morgan Stanley are said to have committed around 40 per cent of IOI Central Boulevard Towers’ office space. IOI Properties was said to be targeting an average of around S$12-14 psf a month for its project.

While marketing activities for the three projects are ongoing, JLL noted that around 1.5 million sq ft of office space remain uncommitted to date. 

Occupiers are likely to hold back on committing to new leases – at least in the shorter term – if the macro-environment remains turbulent and the geopolitical situation tense, said JLL’s Tay.

“Against the backdrop of an influx of upcoming projects competing for a limited pool of tenants, the short-term oversupply of office space could become more pronounced,” she said. “Downward pressure on rents is set to intensify, and we could see rents correcting further in the coming quarters.”

CBRE noted that despite the near-term risks, Grade A office rents in the core CBD were up 1.3 per cent in the year to date.

This momentum is likely to continue through the rest of the year, with rents for Grade A offices in the core CBD potentially growing by 1.5 per cent to 2 per cent for the entire year, said CBRE. 

While that is higher than the projected growth in gross domestic product, it is also a “more modest pace” compared with the 8.3 per cent rental growth in 2022, it said. “This resilience reflects Singapore’s strong office fundamentals, as it remains relevant and is well-placed as a key business hub and gateway city despite the weaker global economic backdrop.” 

“The delayed completion of IOI Central Boulevard Towers to Q1 2024 should keep market vacancy low and maintain landlords’ confidence for the remainder of 2023,” said Tricia Song, head of research for Singapore and South-east Asia at CBRE.

*Amendment note: A previous version of this story incorrectly stated that there was a net absorption of 1.1 million sq ft in Q3.