Despite a seven-year high in islandwide new office completions in 2024 amid tempered leasing demand, the Singapore office market may be heading for a severe supply crunch in the Core Central Business District (CBD) Grade A segment.

No new supply in this segment is slated for completion in the next three years, from 2025 to 2027, noted CBRE’s head of office services for Singapore, David McKellar.

“More new sites in the CBD can be considered to ensure competitiveness of Singapore’s commercial scene. ” —DAVID MCKELLAR OF CBRE

“In the longer term, the CBD will remain relevant as a focal point of activity due to its centralised location and extensive access (to) infrastructure,” he said.

“Discerning businesses that consider real estate strategy to be part of their talent attraction and retention efforts continue to demonstrate a strong preference for premium office buildings with superior specifications – especially those located within the CBD,” he added, noting that prime locations such as Marina Bay and Raffles Place remain highly sought after.

JLL’s head of office leasing advisory for Singapore Andrew Tangye also said that “recentralisation” is in play, as employees prefer connectivity and accessibility. “The trend of working closer to home did not gain further traction post-Covid,” he added.

For some time now, market observers have been quietly suggesting that the authorities consider releasing sites for office development in the CBD, where offices are more in demand than in decentralised locations such as Jurong.

McKellar said: “More new sites in the CBD can be considered to ensure the competitiveness of Singapore’s commercial scene and to provide more choices for future occupiers.”

Agreeing, Savills Singapore executive director of research and consultancy Alan Cheong said: “Even though net demand for CBD Grade A offices is weak as some companies are in the process of migrating certain corporate functions – including backroom operations – out of Singapore to more economical locations in the region, office supply in our CBD is tight.”

He added: “Vacancy rate for CBD Grade A space is expected to remain low in 2025 but this masks the challenges that MNCs are facing globally as they transition to AI-driven business models that replace expensive human capital with technology. Tight office supply in Singapore’s CBD leading to higher rentals could exacerbate the further loss of its cost competitiveness.”

“We don’t see any specific industry coming into Singapore that will drive up net office demand.” —ASHLEY SWAN OF SAVILLS

Office leasing agents described 2024 as relatively quiet with most tenants continuing to choose renewal upon lease expiry, instead of relocation due to high fit-out costs (arising from elevated construction and financing costs). “Nevertheless, occupancy levels, especially of quality office buildings, were healthy throughout 2024 even as technology companies and banks downsized their footprints,” said Knight Frank Singapore’s head of occupier strategy and solutions, Calvin Yeo.

Some two million square feet (sq ft) net lettable area of office space was completed in Singapore this year. Of this amount, 1.26 million sq ft is from IOI Central Boulevard Towers in the CBD – of which about 75 per cent is currently committed. IOI Properties is confident of reaching 100 per cent within the first half of 2025.

Some occupiers requiring prime CBD offices are now looking at secondary spaces in existing buildings such as Marina One and Capital Square. Meta is said to have given up about 114,000 sq ft of its roughly 500,000 sq ft space at Marina One upon lease renewal. In the first half of 2025, Prudential Singapore will be returning to its landlord two floors totalling about 69,100 sq ft in the same complex as it moves its corporate office to Labrador Tower.

At Capital Square, roughly 150,000 sq ft is estimated to be freed up from the relocations of Amazon and Morgan Stanley to IOI Central Boulevard Towers.

“Space optimisation strengthens the case for upgrading to higher-quality offices.”

—ANDREW TANGYE OF JLL

“The supply landscape looks stable, characterised by a limited pipeline of new supply and sufficient demand that will absorb the emerging secondary market spaces,” said Jeryl Teoh, the co-head of commercial leasing at Cushman & Wakefield (C&W) Singapore.

Rental forecasts

C&W forecasts faster rental growth of 2 to 3 per cent for its CBD Grade A office basket in 2025, compared with an estimated 1.4 per cent increase in 2024. In 2023, the increase was 3 per cent.

JLL forecasts rental growth of close to 3 per cent for 2025, following increases of 2.4 per cent in 2024 and 0.7 per cent in 2023.

CBRE is also projecting a stronger rental increase of about 2 per cent in 2025 for its Core CBD (Grade A) office basket, against a 0.4 per cent rise in 2024. “This is mainly due to the higher GDP growth forecast, continued flight to quality and limited future supply”, said Tricia Song, the company’s head of research for Singapore and South-east Asia.

Chua Yang Liang, the head of research and consultancy for South-east Asia at JLL, said: “Sustained economic growth in 2025 could embolden businesses that had previously postponed expansion and relocation plans due to market volatility, to reactivate their growth strategies; this could potentially trigger a release of pent-up office demand.”

Breakout year for rents, or will resistance set in?

Teoh of C&W points to a potential wave of relocations in 2025, driven by occupiers that have renewed their leases multiple times and fully amortised their fit-out investments, making it an opportune time to reassess their space needs.

“Amid increasing calls to return to the office and flight-to-quality trends, coupled with declining global interest rates, office demand could surprise on the upside. Despite ongoing market challenges, 2025 has the potential to be a breakout year, with demand and rents exceeding expectations amid a constrained supply pipeline,” Teoh added.

That said, CBRE’s McKellar stressed that higher rental levels may face resistance from occupiers who find Singapore too expensive.

Savills and Knight Frank expect office rents to be flat in 2025.

Ashley Swan, executive director of commercial at Savills Singapore, said: “We do not see any specific industry coming into Singapore that will drive up net office demand. We will probably see pockets (of demand) in the tech, banking and professional service sectors.”

“There may be some demand coming from Asian tech firms and AI firms, but we do not believe that they will take up significant space to start with, or rapidly,” he added.

Yeo of Knight Frank said: “There is a lack of a dominant industry sector, such as the finance or technology sectors in the past that had previously signed up for large tracts of office space in aggressive expansion modes.” That said, falling interest rates might contribute to business growth and consequent demand for better-quality facilities, he added.

Teoh of C&W noted there was more supply in the market this year from the completion of IOI Central Boulevard Towers, leading to an increase in the vacancy rate for the company’s CBD Grade A office basket from 3.7 per cent as at end-2023 to 5.5 per cent in Q3 2024. This is a three-year high, though vacancy remains relatively tight, he added.

The company sees the figure easing to 4.7 per cent at end-2024 and 4.4 per cent at end-2025.

C&W projects net demand, as reflected by change in occupied space, of about 700,000 sq ft for CBD Grade A offices in 2025, down from 900,000 sq ft in 2024. JLL is looking at net demand of 600,000 to 700,000 sq ft in 2025 for the CBD Grade A office basket it tracks.

Tangye noted that a key trend in 2024 has been that many companies strategically right-sized their office footprints during lease renewals to enhance cost efficiency, amid the widespread adoption of hybrid work arrangements and increased offshoring of job functions.

“This optimisation of space utilisation not only reduces cost but also strengthens the business case for upgrading to higher-quality office spaces,” he added.

On the whole, agents said office leasing demand has been more subdued. “We see smaller to mid-sized occupiers dominating 2024’s leasing market, where leasing deals are typically under 50,000 sq ft, a shift from the larger deals of over 100,000 sq ft seen in 2022 and 2023,” said McKellar of CBRE.

“Slowing demand from the tech sector has made it increasingly hard to source for (tenants). Landlords have to rely on the resilience of other smaller and diversified sectors to drive occupancy of buildings,” he added. These include non-banking financial institutions, law firms, government agencies and companies in consumer products.

Landlords adapt

Landlords have been quick to adjust to the situation. These include subdividing floors into smaller spaces, said June Chua, head of leasing for Singapore at Newmark, a New York-headquartered commercial real estate adviser and service provider.

“Recognising the challenge tenants face in getting approval for capital expenditure to fit out a new office, some landlords are willing to fit out smaller office units ‘speculatively’ before securing a tenant,” she added.

The trends and challenges seen in 2024 are mostly expected to continue in 2025.

JLL’s Chua highlighted additional factors likely to weaken Singapore’s cost competitiveness, potentially causing some large companies to rethink their expansion plans. These include the rising cost of labour amid tight supply, and impending corporate tax reforms to ensure that Singapore is aligned with the international implementation of the Base Erosion and Profit Shifting (BEPS 2.0) framework, a global initiative that aims to address tax avoidance.

On a more positive note, Chua said improving business performance, on the back of AI, at major tech firms – such as Amazon, Meta, Tencent, Alibaba and JD.com – could see them re-embark on expansion plans, including in Singapore after staying relatively muted for two years.