Office Market Outlook Despite Singapore’s modest GDP growth in 2023, demand in the office market, especially for quality office spaces, remained sustained due to limited supply and an increasing back-to-office momentum. This was also reflected in the healthy take-up of shadow space. Throughout 2023, vacancy rates remained low, particularly in prime CBD areas. The lack of readily available spaces created a competitive environment for tenants, driving up rents and creating favourable conditions for landlords. While the Singapore office market is expected to face challenges in the near term such as an uncertain economy and fewer visible demand drivers, cyclical demand could improve alongside an expected recovery in the Singapore economy in 2H 2024. Going forward, the trends of refining workplace utilisation and flight-to-quality will likely persist, with vacancy increasing across the Grade B submarkets. Occupiers planning to reduce their footprint may choose to upgrade to better-quality but smaller offices. The demand for higher quality buildings will impact the occupancies and rentals of Grade B buildings in the CBD. As the two-tier market becomes more apparent, more landlords could likely see the opportunity to undertake AEIs to unlock the value of their assets in the longer term. This will help to enhance the overall quality of office buildings in the CBD, supporting the government’s vision of rejuvenating the CBD. In 2024, leasing demand is likely to be broad-based, instead of demand largely coming from industries such as technology in recent years. There will also be expected adjustments in space requirements as firms look to calibrate their footprint as they navigate their office strategy between hybrid and return to office arrangements. Demand from mid-sized firms is also expected to contribute to demand. CBRE expects Grade A CBD Core office rent to outperform 2023’s growth rate of 1.7%, coming in at 2-3% for 2024, along with an improvement in the Singapore’s economy. Cautious sentiment is likely to be observed in the first half of 2024 which can be attributed to a larger incoming new supply, including the completion of IOI Central Boulevard Towers in CBD Core and Labrador Tower in the Decentralised Area. Rents are likely to pick up more meaningfully in 2H 2024 as the global economic recovery gains more traction. In addition to rental considerations, high material and labour costs are expected to persist in 2024. As a result, corporations constrained by capital expenditure, will face difficulty in relocating or implementing new workplace strategies that support the post-pandemic environment. Establishing a clear workplace strategy that incorporates hybrid and flexible work options is crucial for companies, especially those with outdated workspaces. Companies may have to balance employees’ locational preferences when bringing them back to the office. Source: CBRE Singapore, 4Q 2023 PROJECTED CBD CORE MONTHLY RENTAL 14 12 10 8 6 4 2 0 Rental Value (S$/sq ft/month) 9.40 10.80 11.55 10.40 10.80 11.70 11.90 12.20 12.65 7.45 8.30 8.70 7.90 7.80 8.50 8.50 8.30 8.35 2022 2023 2024F 2025F 2021 2019 2018 2017 2020 Grade A CBD Core Monthly Rental Value Grade B CBD Core Monthly Rental Value Overview Leadership Performance Framework Other Information ANNUAL REPORT 2023 105
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