THE latest official data on the Singapore office market points to a broadening of the bifurcation between better-quality office buildings in the city area and the rest of the market.

Chua Yang Liang, JLL’s head of research and consultancy for South-east Asia, attributes this to “office occupiers’ continual gravitation towards better-quality spaces”.

A breakdown in the Urban Redevelopment Authority’s (URA) median office rentals (based on lease commencement) showed that the rent for the newer, better-specification and centrally located office space – or what is termed Category 1 offices – held firm in the fourth quarter of 2024 at S$12.52 per square foot (psf) per month, unchanged from the previous quarter.

However, the median rental for the rest of the office space in Singapore – or Category 2 – slipped 3.2 per cent quarter on quarter (qoq) to S$6.35 psf in Q4 2024, Dr Chua noted.

On a full-year basis, the median rental growth for Category 1 offices also outperformed Category 2 offices, with increases of 4.5 and 1.8 per cent, respectively.

URA numbers also show that the vacancy for Category 1 offices has started to trend down in Q4 2024, while that for Category 2 stayed elevated amid the flight to quality.

The vacancy figure for Category 1 space fell to 9.1 per cent as at end-Q4 2024, from 10.3 per cent as at end-Q3 2024.

The vacancy for Category 2 offices was 11.3 per cent for both quarters.

Tricia Song, head of research for Singapore and South-east Asia at CBRE, predicts that the “trend of prioritising high-quality office spaces will continue to be a key focus in 2025, as occupiers emphasise talent attraction and retention”.

URA’s office rental index for Singapore’s central region fell 0.9 per cent qoq in Q4 2024, a bigger drop than the 0.5 per cent qoq decline in Q3 2024.

For the whole of 2024, the index remained the same, after climbing 13.1 per cent in 2023.

The islandwide vacancy rate of office space fell to 10.6 per cent as at the end of Q4 2024, from 11 per cent as at end-Q3 2024.

However, the latest vacancy number is higher than the 9.9 per cent as at end-Q4 2023.

The amount of occupied office space across Singapore rose by 247,570 square feet (sq ft) of net lettable area (NLA) in Q4 2024, after expanding by nearly 183,000 sq ft in Q3 2024.

For the whole of 2024, islandwide office net demand, as reflected by the change in occupied space, was around 118,400 sq ft, a smaller expansion compared with the increase of about 893,400 sq ft in 2023.

Persistent centralisation

Wong Xian Yang, Cushman & Wakefield’s (C&W) head of research for Singapore and South-east Asia, said: “Despite a slowdown, the Downtown Core remains the main driver of office net demand, underscoring persistent centralisation amid rising return-to-office efforts.”

Net office demand in the Downtown Core was 861,112 sq ft in 2024, which is still three-quarters of the 1.15 million sq ft chalked up in 2023.

This relatively strong showing, however, was mostly offset by contractions in net demand in the Orchard area and Rest of Central Area.

CBRE’s Song suggests the removal of certain buildings from the office stock for redevelopment, such as Singtel Comcentre, Central Square and Central Mall, are likely to have contributed to the low islandwide net absorption figure in 2024.

Islandwide net supply, as reflected by the change in available stock, rose by 818,056 sq ft in 2024, after contracting by 355,209 sq ft in 2023, based on JLL’s analysis (see chart).

The major office project completions last year were IOI Central Boulevard Towers (IOICBT) in the Central Business District and Labrador Tower in the Pasir Panjang area.

Noted Song of CBRE: “With IOICBT being the latest development and no significant new supply expected in the prime Grade A Core CBD area for the next three years, vacancy in this submarket ought to remain tight as the overhang of space is largely being absorbed.”

Leonard Tay, head of research at Knight Frank Singapore, said: “In 2025, most international corporations with some headquarter functions in Singapore are likely to adopt a wait-and-see approach until there is more clarity before deciding on expanding or relocating their workplaces, at least for the first half. At the same time, some businesses are expected to continue relocating in measured and selective flight-to-quality moves from ageing buildings as and when leases expire.”

Knight Frank expects rents to be largely unchanged in H1 2025, with “some growth projected in the second half once the world adjusts to the combination of the above factors”.

Steady demand recovery in 2025

C&W’s Wong expects Singapore office demand to recover steadily in 2025, “fuelled by growing occupier confidence and the release of capital expenditure for (office) expansion projects amidst steady economic growth, continued flight to quality and robust return to office efforts”.

JLL’s Dr Chua added: “Occupier demand is expected to remain modest in H1 2025 amid uncertainties including potential policy changes relating to the Donald Trump 2.0 administration. Rent growth may accelerate thereafter as sustained economic growth spurs demand from tenants who previously deferred relocation or expansion plans.”

URA data also showed that prices of office space in the central region decreased 0.7 per cent qoq in Q4, after increasing 0.6 per cent in the previous quarter. For the whole of 2024, prices of office space rose 1.8 per cent, contrasting with the decrease of 4.2 per cent in 2023.