Singapore Grade A office rents up by 0.7% after two quarters decline

Tight supply and renovation costs drive rent increase.

After two consecutive quarters of decline, Singapore’s Grade A office rents have shown a slight recovery, marking a 0.7% increase in the first quarter of 2024. This upward trend occurs despite largely unchanged office footprints, signalling a shift in the market dynamics.

Tridiana Ong, Executive Director and Head of Office Services at Colliers Singapore, attributed this rebound primarily to a constrained supply of high-quality office spaces. "During a pandemic, supply of Grade A office space has been tight," she explained. 

Even with an expected increase in supply, she said that "a bulk of the 1.3 million square feet of office space is coming from a single development, 1.26 million square feet of space coming up at IOI Central Boulevard."

Additionally, cost factors have played a significant role in the recent pricing dynamics. In 2023, a trend of relocating to higher quality spaces was prevalent among tenants, often accompanied by rightsizing efforts. The recent spike in fitting out or renovation costs has led many tenants to opt for lease renewals, which is becoming an increasingly common trend. 

Ong noted that these costs have "pressured a lot of tenants into lease renewals," giving landlords, particularly those with healthy occupancy rates, a slight upper hand in negotiations, thereby driving up rents.

"Employees' well-being, engagement, and productivity are key considerations," she stated, emphasising that forward-looking companies are particularly attentive to these factors. Landlords are encouraged to improve the overall workplace experience, which can include both tangible upgrades like better amenities and intangible benefits like community-building events and activities.

In response to potential changes in office space demand and rental prices, companies are exploring various strategies. Some are considering investing in strata-titled office spaces, although this represents a smaller segment of the market. The majority of office occupiers remain in the leasing market, dealing with rising rents by rightsizing. However, Ong suggests a more sustainable approach involves creating flexible, smart workplaces that enhance employee engagement and productivity.

For companies needing to adjust but constrained by capital expenditures, second-generation spaces provide a viable alternative. These are fitted spaces previously occupied by other tenants that may only require minor modifications, offering cost-effective solutions without the need to relocate outside central business districts.