Singapore office rental index breaches peak last seen in 2008 

The rental index rebounded 3.1% in Q2.

According to JLL, the URA office rental index for Singapore’s Central Region rebounded 3.1% q-o-q in 2Q24, exceeding the last peak in 2Q08. 

“This rebound also follows a 1.7% contraction in 1Q24, despite weaker net demand and rising vacancy rates. The skittishness in the rental index also reflects the bifurcated economic forces driving office leasing,” said Dr Chua Yang Liang, JLL Head of Research and Consultancy, Southeast Asia.

Here’s more from JLL:

Based on our analysis of the 2Q24 Business Expectations Survey by the Singapore Department of Statistics, there is an apparent bifurcation in the services sector. According to that survey, Infocomm, Finance & Insurance companies collectively have a net weighted positive 18% who have a stronger, more positive outlook on their revenue forecast in 2Q24 as compared to a net weighted negative 10% of Real Estate and Professional Services firms, which expect revenue to be weaker. This divergence in expectations could have underscored the unpredictability in the rental index.   

Overall, these firms collectively have a net weighted positive 15% who are more optimistic over their business prospects in the immediate term into September. We reckon this could provide some lift to the occupier demand in the office sector despite the incoming supply pipeline.

Supply over the next 12 to 18 months remained significant with Keppel South Central (0.6 million sq ft) and the redeveloped Shaw Tower (0.4 million sq ft) on track for completion in 2025. Adding on the uncommitted spaces at IOI Central Boulevard Towers, there could still be over 1.5 million sq ft of new quality office space competing for occupiers.

The office market is also grappling with the need to backfill the spaces that some larger floorplate occupiers plan to relinquish as part of their corporate restructuring. These include Meta’s space at South Beach Tower, expiring in September this year, as well as BNP Paribas’s space at Ocean Financial Centre when their lease expires at the end of this year.

This recent rebound in rent is also in line with JLL research data which showed that gross effective rent for Central Business District (CBD) Grade A office space is still expanding albeit decelerated from 1.4% q-o-q in 1Q24 to 0.7% q-o-q in 2Q24. This slower rental growth comes shortly after office rents exited two-quarters of rental contraction in 1Q24. Based on JLL data, rents climbed to SGD 11.50 per sq ft per month in 2Q24, which is 25% shy of the historical peak of SGD 15.27 per sq ft per month recorded in 2Q08.