Singapore’s office oversupply concerns ‘'overstated': analysis

Ongoing return-to-office trend and flight to quality will support the Grade A office market.

Concerns of a downturn in Singapore’s office commercial real estate market is unlikely, with majority of the new office supply already absorbed, reports DBS Group Research.

Two major developments that contributed to the 2 million sqft stock of new office supply have achieved healthy pre-commitment rates of around 70%, DBS Group Research equity analysts Dale Lai and Derek Tan said in a report published on 12 December 2024.

Grade A core central business district (CBD) rents have also shown resilience, rising only by 1.9 percentage points at the start of 2024 and remaining stable during the year, despite the new supply.

Resilience is underpinned by two factors: the trend of flight-to-quality, with companies upgrading to Grade A offices with better specifications; and steady office demand amidst ongoing return-to-office (RTO) working arrangements in Singapore, said Lai and Tan.

“The remaining vacancies at IOI Central Boulevard could be taken up in less than a year,” the analysts said, citing historical data on annual net absorption at the CBD.

The supply squeeze should result in higher rental rates for overall Grade A core CBD market, they added.

“We expect landlords to be well positioned to continue achieving positive rental reversions and promptly backfill vacancies to ensure organic earnings growth,” Lai and Tan said.

Amongst office REITs, DBS Research Team’s top pick is KREIT, the only pure-play office landlord with majority of its Singapore portfolio in the core CBD.

“KREIT’s overall portfolio occupancy rate of 98% reflects strong performance of its Singapore and overseas assets,” Lai and Tan said.