Singapore CBD Grade A office demand could remain weak until 2026

Rental movement is expected to be at -1% to 1% in 2025.

The third quarter of 2024 was another quarter of relative inactivity in the Singapore office leasing market with few large leases concluded. According to a Savills report, in the Grade A CBD space, although most multinationals that take up large areas have leases which expire in 2025 and 2026, they still do not have the budget for fit-outs which would provide them the flexibility to move to new buildings or downgrade. 

“From the period just before the pandemic to date, the cost of reinstatement has skyrocketed by over a multiple of two and this adds further resistance to the ability of tenants to relocate. The option left is for tenants to rightsize,” the report said.

Here’s more from Savills:

This rightsizing is however not because of hybrid working as much of that had already taken place in 2023 and 2024 with the bulk of excess or shadow space already absorbed. The impact on office space usage will be from the reorganisation of technology firms as the emphasis shifts to artificial intelligence. The rollout of artificial intelligence products from large tech firms will percolate to adoption by businesses which is likely to lead to a rationalisation of work forces which will impact office space usage. 

While demand may remain weak until 2026, rents for CBD Grade A space may still hold firm. If there is any downside, it may prove limited. The reason is that vacancy rates in these offices are likely to remain below 8% as new supply in the CBD is expected to spike this year at 1.3 million sq ft Net Lettable Area and thereafter fall to about 1 million sq ft in 2025 and 0.2 million sq ft in 2026. Unless there are unforeseen structural shifts brought on by the adoption of AI, our forecast for CBD Grade A rental movements for 2024 is 0% to 1% and -1% to 1% for 2025.