Office landlords dangle perks to attract tenants

Vacancy level could rise to 4.8% this year.

A flight to the quality trend has kept rents of prime office space in downtown Singapore steady in the first quarter, although landlords would have to be more proactive in securing tenants as competition in the market intensifies, according to Colliers.

In its latest market report, Colliers noted that CBD premium and Grade A office rents rose 0.7% QoQ in the first quarter of the year, snapping two consecutive quarters of decline.

Contributing to the mild rebound were small pockets of space leased at higher rates during the quarter mainly as businesses seek quality workspace. Some landlords were also able to command higher rates in renewals last quarter as companies still view it as more economical to stay in their existing office than relocate.

Colliers saw leasing activity holding up in quality office buildings in prime locations and some landlords even raised rents due to the ongoing strong demand in this segment. It also found landlords were more willing to offer more incentives to secure tenants.

”Due to increasing competition, landlords should prioritize retaining tenants and consider more flexibility in rental negotiations; or offer more incentives to attract new tenants,” Colliers said.

Occupiers, meanwhile, should take advantage of the uncertainties clouding the market recently and negotiate their terms during the first half of the year, or risk facing positive rent reversions in the future.

Colliers said demand for premium offices has remained muted overall as the challenging business environment pushes companies to practice prudent spending and look for ways to optimise their current workspace.

Occupiers from the consumer goods, law and non-bank financial sectors were the main drivers of office leasing activity last quarter, while tech firms took a backseat.

“Rents in the Core CBD Premium and Grade A segment will likely be range bound and recover more meaningfully in the later part of the year with the economy,” Colliers said.

For the entire 2024, the property agency forecasted prime office rents to post 0% to 2% YoY growth and settle within $11.49 to $11.72 per square foot per month. Vacancy rates within prime office assets in the Core CBD

About 1.26 million sq ft of new prime office space will be entering the market this year with the completion of the IOI Central Boulevard Towers alone. 

Delays at Keppel South Central, meanwhile, will take some pressure off vacancy levels, although Colliers still expects the average vacancy rate in prime core CBD office assets to rise to 4.8% by the end of the year from 2.6% in the first quarter.