Prime office, industrial rental growth to subside in 2024, says expert

Retail is poised to buck the trend.

Singapore’s CBD Grade A office space and industrial sector are both projected to see softer rental growth next year while retail leasing is set to continue its rally, Cushman & Wakefield said in a recent report. 

The property agency’s later projections show that CBD Grade A office rent will likely remain unchanged or slow down to a 2% growth next year due to high supply. This is a dip from 2023’s projected 2.5% to 3% increase, which had already drastically dropped from the 6.5% forecast in 2022.

“With more options in the market, occupiers with expiring leases in 2024/2025 should take this opportunity to negotiate their leases. This window of opportunity may be fleeting as the market will return to a tight supply situation post-2024,” the report stated.

Industrial rents will moderate as well since recovery is fragile as interest rates are likely to remain elevated in the long term. Rental growth could be cut in half as prime logistics is expected to slow down growth to only 5% next year.

Emerging interest in warehouses is also curbed by a scarcity of supply, with vacancy rates for warehouses remain lower to pre-pandemic levels. However, occupiers could also explore build-to-suit opportunities themselves or partner with developers to secure expansion sites and manage real estate costs given the surge in prime logistics rent.

“With a tight supply situation persisting into 2024, warehouses could see continued but tapering off rental growth into 2024, as tenants are increasingly resistant to rents which have nearly doubled since the pandemic,” the report read.

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Meanwhile, the property agency expects retail landlords to enjoy healthy rental growth next year as the recovering tourism and revenge spending drive the city-state past pre-Covid numbers.

“Orchard prime retail rental growth should continue to outpace other submarkets at 2%-4% YOY amidst recovering tourism,” the report said.

Higher rents and labour shortages could, however, push struggling brands to bow out but landlords expect vacancies to be occupied quickly.

Retailers have also been adjusting their business strategies given the competition with online entertainment and shopping platforms, as well as consumer interest shifting to more experimental concepts.