Singapore prime office rents to increase by 2-3% annually for the next two years

Even non-Grade A office rents could rise by the same rate.

While rents from Savills’ basket of CBD Grade A office space increased 0.8% QoQ and 1.5% YTD, the URA’s rents for Category 1 and 2 office buildings showed a slightly different picture with QoQ rents for Category 1 buildings with lettings >1,000 sq m rising 1.5% but falling 0.4% YTD.

“The difference could be due to buildings covered and definitional issues. Nevertheless, what can still be discerned is that rents are generally still climbing as of the date of lease contract,” the analyst said.

Here’s more from Savills:

The rise in Category 1 rents has pulled up rents for Category 2 buildings as well. The spread between the two categories have been averaging S$37.9 psm pm (S$3.52 per sq ft pm) and had been rather constant, albeit there is some fair bit of volatility on a QoQ basis. One interpretation is that the two segments of the market are substitutes. The rising cost of renting Grade A space is bootstrapping up lower grade office buildings in the CBD.

Indeed, there appears to be a gravitation by offices to take up space in the lower grade office buildings in the Downtown Core because we are seeing that vacancy levels for offices in the area have been falling while our basket of Grade A offices have been witnessing rather stable vacancy rates.

With the supply of Grade A office space limited for 2026 and 2027, the rents for the premium grade of office space in the CBD are likely to continue rising. This is likely to be the case despite companies facing uncertain business prospects and other cost push pressures. However, companies will not sit idly by and continue to let operating costs build.

On the office leasing front, what may entail then is the move by large office space users to attempt to downsize upon lease renewal or lease out excess space as their existing lease still has some years to run. The shadow space content in the market is thus likely to remain a feature in this market. For companies with less heft, rents for Grade A office space may still be too high and are likely to continue to squat in lower grade buildings or co-working spaces.

New to market multinational companies, especially those in the realm of frontier technology, because they do not follow stodgy old economy company house rules on office space practices and to avoid inflexible lease term structures, could resort to serviced offices and co-working spaces or site in the lower spectrum of Grade A offices.

Owing to the lack of new supply for Grade A CBD offices from now to end-2027, we believe that office rents for Grade A offices should continue to rise at rates about 2-3% per annum for the next two years. Arising from substitutive effects, rents for non-Grade A CBD office rents may rise by similar amounts.