IOI Central Boulevard Towers in Marina Bay, part of 2024 surge in new office supply (Image: IOI)
Grade A office rent growth in downtown Singapore is expected to slow to 2% next year from 2023 levels due to a surge in new supply, according to Cushman & Wakefield.
It is estimated to rise by 6.5% in 2022 and 2.5-3% this year, but the market is expected to cool next year due to the introduction of three major projects to the market and more cautious spending by major players. said the authorities. This is what he says in his Singapore market outlook:
The report said the increase in supply, including approximately 2.6 million sq ft (241,548 sq m) of new space at IOI Central Boulevard Tower, Keppel South Central and Labrador Tower combined, will lead to a Grade A development in the central business district. It points out that the office vacancy rate may exceed 5. Demand increases gradually throughout the year, reaching % in 2024.
“Occupants with leases expiring in 2024/2025 should take this opportunity to negotiate leases, as there are more options on the market,” Cushman & Wakefield said. “This opportunity may be fleeting as the market returns to a situation of undersupply after 2024.”
Decline in demand in the third quarter
Mr Cushman’s forecast comes after JLL reported average rents for Grade A offices in the CBD fell for the first time in more than two years in the third quarter, falling by 0.3% on the back of weak demand and an influx of new space. Ta.
JLL attributes some of the decline in rents (stopping a nine-quarter upward trend) to the broader economic slowdown and predicts that interest rates will continue to fall in coming quarters as occupiers become more cautious. did.
Xian Yang Wong, Head of Singapore and Southeast Asia Research, Cushman & Wakefield
Among the major projects in its supply pipeline, Malaysia’s IOI Property Group completed the IOI Central Boulevard Towers project in August, with two Marina Bay towers totaling 1.24 million sq ft in Q1 2024. was put on track to officially complete the project.
Keppel Corp’s 33-storey Keppel South Central is set to roll out 650,000 sq ft in Tanjong Pagar by the fourth quarter of next year, while the redevelopment of Shaw Tower on Beach Road will open for additional floor space in early 2025. 400,000 square feet will be operational. .
SP Group’s Labrador Tower is scheduled to add approximately 700,000 square feet of office space to the Labrador Park area on the western edge of downtown upon completion in mid-2024, and the Temasek-owned power utility is expected to add environmentally friendly features and touts a long list of eco-friendly features. Green Mark Platinum Ultra Low Energy Certification.
The financial sector was the main driver of CBD office demand in 2023, accounting for 46% of new leases, Cushman estimates. One of the few big deals signed in the third quarter was the purchase of at least five floors of the IOI Central Boulevard Towers, as New York-based investment bank Morgan Stanley looks to relocate its Southeast Asian operations. It was promised to occupy more than 100,000 square feet.
Investment market challenges
Cushman forecasts that core office investing could remain challenging in 2024, with borrowing costs likely to remain above the Grade A net yield of 3.2%.
Key office transactions tracked by the agency in the second half of 2023 include the S$538 million ($392 million) acquisition of Shenton House in Marina Bay by IOI director Lee Yosen, and the acquisition of Shenton House in Marina Bay by the International Olympic Committee. This includes the purchase of the Vision Crest commercial building in the Orchard area by IOI. He established a joint venture between TE Capital, LaSalle and Metro Holdings for S$455 million.
The acquisition is expected to be for value-add and redevelopment purposes. “While interest rates are expected to decline gradually, they may remain prohibitive in the short term, so value-add and opportunistic investments that have the potential to generate higher returns will continue to be the mainstream in 2024.”