Sluggish rise in premium office rents in 2024: Colliers

Rents are expected to grow by just between 0% to 1% during the year.

Companies in Singapore will have opportunities to secure their ideal offices or renegotiate leases in the first half of 2024. According to Colliers, the large available uncommitted premium space in the market may just drag down rent prices in the near term.

Premium and Grade A office rents in Singapore’s central business district (CBD) continued its decline in the final quarter of 2023, signaling the start of the softer market in the near future.

Core CBD Premium & Grade A office rents declined 0.2% quarter-on-quarter in Q4 2023 compared to the previous quarter, ending the year at S$11.49 per square feet (sqft), according to a report by professional services and investment management firm Colliers.

“This drop in rents can be attributed to muted demand as tenants become more conservative in spending and driving space optimisation,” Colliers said in its Q4 2023 report on Singapore office rents.

As a result, Colliers now expects annual rental growth in the Core CBD Premium and Grade A offices to be slow: as high as just 1% for the whole year, to even having no changes at all (0%).

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“Office deal sizes are expected to remain small, with higher interest in strata offices due to their more manageable quantum, and as buyers exhibit prudence with the higher cost of capital and uncertainty,” said Catherine He, director, head of Research, Singapore, Colliers. 

Situation should improve in the second half of the year, when interest rates are expected to recede, she added.

Fleeing to the fringes
In 2023, the so-called Premium office segment dragged down rent prices, particularly those at Raffles Place and New Downtown, Colliers noted. Rents for Grade A offices in the CBD, meanwhile, have been supported by demand for smaller spaces and limited supply.

Demand seemed to be spilling over to the Fringe CBD and the city fringe, as tenants seek financially attractive options near the CBD, Colliers noted.

“With the improvement in the transport network, higher rents in the CBD, and quality options further out, more occupiers might also be receptive to take up space in the CBD/City fringe,” it added.

Shifting ‘power’ dynamics
Colliers advised occupiers to take advantage of the softer markets to secure their ideal space or renegotiate lease terms. Landlords, meanwhile, are advised to focus on securing renewals and be more flexible in rental negotiations. 

“They could also subdivide space to meet the demands of smaller requirements,” Colliers said.

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In the near term, landlords may find market power shifting away from them at least in the near term, as more options become available to tenants. 

It is expected that 1.9 million sqft of prime office space will be available in 2024, with around 1.1 million sqft still uncommitted.

Meanwhile, as shadow and secondary spaces build up, vacancy and rents may come under further pressure from the increasing amount of available space, Colliers said.

Flexible work arrangements will also affect the way employers look at the space they need.

“The guidelines on flexible work arrangements will become compulsory for employers to follow in 2024. As such, more firms may right-size according to their work arrangements and corresponding space requirements,” Colliers wrote.