Singapore office rentals remained resilient at elevated levels and inched up further to SGD11.95, and could remain steady given tight supply. This is attributed to IOI Central Boulevard Tower (ICBT) which has yet to achieved TOP. Despite the high rents, flight to quality trend remains, with good-quality office buildings at Core CBD preferred. We believe the high rents will continue to hold steady, as supply remains tight for the next few years, despite headwinds from slowing economic growth.
1Q24 leasing activity in Grade A Core CBD was subdued but vacancy rate was below 4%; shadow space reduced to c.200k sqft vs. a high of 700k sqft in 1Q23; hopeful that business activity will return when interest rates stabilise alongside stronger economic growth in 2H24. The year started with a flat net absorption rate in 1Q24, unlike being in negative territory as per the previous few consecutive quarters, thus keeping the vacancy rate below 4%. In addition, shadow space remained low at c.200k sqft vs. the record high of 700k sqft in 1Q23. Economic headwinds and uncertainty in 2024 continue to weigh on overall office demand. However, it is interesting to note that large, traditional CBD office tenants have maintained their status quo position, preferring to renew, while technology tenants which have been right-sizing previously are maintaining their space requirements with some pockets of expansion (such as AI-related companies). Despite the lofty rents, flight to quality trend is intact and will likely sustain rents, given the tightness in good-quality office supply. As such, we continue to believe that Grade A Core CBD rents could remain more resilient than expected.
Pre-commitment at IOI Central Boulevard Tower (ICBT) may hit 70% and likely to support the office market; upcoming new supply at city fringe bodes well for those looking to expand beyond business centres . The completion and occupancy level of the only major new upcoming supply (expected in 2024), ICBT, is the key datapoint to watch in 2024. Pre-commitment remains at close to 50% but market talk is that another 20% is currently under discussion. Successful conversion into leases is positive for the Singapore office market. During the quarter, we note that there has been interest from some firms looking to expand out of business centres which would support upcoming new supply at city fringes. We remain watchful of a potential rise in shadow space should the economic outlook worsen; it appears to be manageable currently.
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DBS Bank Ltd
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982
Tel. 65-6878 8888
Company Regn. No. 196800306E