What is the saving grace for Singapore’s rental market in 2025?

Private residential rents may remain flat this year.

In a recent report, Savills revealed that although rents for non-landed private residential properties in Singapore turned the corner in Q3/2024 and continued rising in Q4/2024, and even though the stock of vacant units also fell significantly in the last quarter of the year, the rental market in 2025 faces challenges.

“The adoption of AI in the white-collar work domain is expected to be felt more strongly from now on and up to this point, it appears that its use is to improve productivity through the substitution of machine thought over expensive human capital,” the report added.

Here’s more from Savills:

Thus far, the impact has been felt amongst the tech companies, which although they pay handsomely, still lag the finance and banking sectors. However, because the higher pay scales have still been left untouched, this presents an opportunity for AI companies to offer solutions to pare down staff costs.

As the cost versus productivity of human capital is now an even more closely conversed topic between AI companies and their customers, at this juncture, the logical conclusion is that we should begin to see a roll back in the number of white-collar professionals. This will ultimately flow through to the number of expatriates or talent needed to be based in situ as more and more decisions become cloud based.

Whether AI will spawn new job types is something that we will have greater visibility on in a few years (it is likely that it will) but in the meantime, the demand for rental housing from tech and white-collar workers, being a derivative of corporate policies, could be negatively affected.

The saving grace for the rental market is that for 2025, new completions of private homes are expected to number about 5,850 units, down sharply from the 8,460 units in 2024. Together with higher property taxes payable, which adds psychological resistance (not necessarily rational because a month of lost rental income for a 2-year lease is equivalent to a 4.2% decline in rents (1/24 month)) to landlords giving in to low ball rents.

With interest rates likely to take longer to fall, mortgage payments are likely to remain sticky at current levels. Combining all these factors, we believe that private residential rents may remain flat in 2025.