PRICE TREND

In the third quarter of 2024, overall office prices continued to rise, albeit at a slower pace. Recent interest rate cuts have made bank loans more affordable; however, uncertain economic conditions and high costs have kept investors cautious about new office investments. As a result, some investors have decided to wait for more favourable market conditions before making any commitments.

According to data from the Urban Redevelopment Authority (URA), the overall price index increased at a slower pace of 0.6 per cent from 113.2 in Q2 2024 to 113.9 in Q3 2024.

Office prices within the Central Area and in the Fringe Area similarly grew slower in Q3 2024, by 0.6 per cent and 0.4 per cent quarter-on-quarter (q-o-q), respectively.

SALES VOLUME

Some investors hesitated to invest in new office units until market conditions improved. Consequently, fewer offices were sold last quarter.

Data showed that sales transactions dipped by 22.7 per cent from 88 units in Q2 2024 to 68 units in Q3 2024. Among the 68 transactions, only one was a new sale.

In the last quarter, total sales value registered a significant decline of 68.5 per cent, dropping from S$1.22 billion in Q2 2024 to S$385 million. 

The sale of the entire 13th floor of the upcoming office building, Solitaire at Cecil, totalled $55.1 million, was registered as the highest sale transaction in Q3 2024. This was followed by two units in an office building along Raffles Quay that sold for $36 million.

Three bulk sales at Tong Building changed hands for $35 million, $33.5 million, and $31.3 million, respectively. Lastly, a unit at Prudential Tower was sold for $26.5 million.

RENTAL TRENDS

In the third quarter of 2024, many companies remained in their existing office spaces rather than relocate to another place. This decision was largely influenced by persistent economic uncertainty and elevated costs, compelling organizations to emphasize cost management over expansion initiatives.

 Some firms outsourced specific business functions, while others focused on retaining and upskilling their employees. This strategic approach facilitated the implementation of flexible work arrangements and enabled the optimization of office environments for essential business operations and collaborative activities.

 As a result, fewer leases were signed. Based on data from URA, overall rental transactions dipped by 1.3 per cent q-o-q to 1,478 from 1,497 in Q2 2024. The number of new leases signed in the Fringe Area* and Suburban Area** similarly fell by 15.8 per cent and 13.7 per cent q-o-q, respectively. Conversely, there was a 5.4 per cent q-o-q increase in rental transactions in the Central Area.

Correspondingly, overall office rents registered a marginal decline of 0.5 per cent last quarter, following a 3.1 per cent growth in Q2 2024 (Chart 4). The decline may be due to an increase in new office supply, which has put downward pressure on rental prices. Meanwhile, office rents in the Central Area dipped by 0.5 per cent q-o-q while the Fringe Area posted a 0.2 per cent q-o-q growth.

*Fringe Area: Planning areas within the Central Region, excluding the Central Area

**Suburban Area: Planning areas outside the Central Region

STOCK AND OCCUPANCY

During the third quarter of 2024, approximately 36,000 square meters of available office space were added to the market (Chart 5).

The increase can be attributed to the completion of IOI Central Boulevard Towers at Central Boulevard and Labrador Tower at Pasir Panjang Road.

Consequently, the vacancy rate for Category 1 offices slightly increased from 10.1 per cent in Q2 2024 to 10.3 per cent in Q3 2024. Likewise, the vacancy rate for Category 2 offices rose from 11.1 per cent to 11.3 per cent during the same period (Chart 6).

During the same period, there was an increase of about 17,000 sqm in the total occupied office stock, following 2 consecutive quarters of decline.

This increase can be attributed to tenants who had pre-committed to the new offices and are now moving in to occupy the newly completed spaces.

Outlook

Despite the recent interest rate cuts by the Fed, which have made borrowing cheaper, uncertain economic conditions continue to prompt caution among office space investors and occupiers regarding their purchasing or leasing decisions. They are likely to prioritize business stability and cost management.  On the supply side, while new office space has entered the market in the past two quarters, the completion of other projects, such as Keppel South Central and the Shaw Towers redevelopment, is expected to be delayed. However, we anticipate that office prices and rents will remain resilient and begin to rise by the end of the year, with the expected addition of another newly completed office, Paya Lebar  Green, to the market.