An outlier in regional office markets, Singapore’s office market continues to show remarkable resilience and boasts one of the lowest vacancy rates in office markets across the Asia-Pacific.

Defying market headwinds, Central Business District Grade-A rents in Singapore rose by 1.7 per cent year on year in 2024; this was despite heightened new supply and a slow-down from cooler demand from the tech sector, the adoption of hybrid work, and capital-expenditure constraints.

Despite current global economic uncertainties that may make occupiers adopt a cautious approach, a continued decline in interest rates is expected to unlock some pent-up demand for office space, supported by the steady growth of office-using employment in sectors like technology, finance and professional services in recent years.

Tighter supply to meet improving demand over the next few years

From 2025 to 2027, the office market is poised to shift towards a tighter supply landscape. Only about 0.4 million square feet (sq ft) of Grade-A space island-wide will be completed annually over the next three years, significantly below the long-term historical average annual net demand of 0.9 million sq ft.

Occupiers are showing a healthy appetite for new office developments amid a sustained flight to quality. New developments in the CBD since 2021, such as CapitaSpring, Guoco Midtown and IOI Central Boulevard Towers all hit occupancy rates of 75 per cent and up in their year of completion.

Due to capital-expenditure constraints and high relocation costs, many occupiers have opted to defer decision-making and instead “make do” with their existing spaces. This trend was also facilitated by the rise of hybrid-work arrangements.

But the tide is slowly turning. Increasingly, companies are encouraging their employees to return to the office more frequently. While flexibility is still practised, this shift is expected to drive office expansion, with physical occupancy in the office going up.

Barring a severe global economic downturn, we expect a potential increase in relocations over the next few years, driven by occupiers seeking premium office space, combined with a backlog of short-term lease renewals from previous years.

Occupiers who have completed more than two lease terms will have fully amortised their fit-out costs, making them more likely to relocate and explore new spaces.

While larger occupiers have focused on optimising their office footprints and remain cautious about expansion, smaller and mid-sized occupiers in wealth management, technology and professional services have steadily absorbed much of the available space in the market.

Singapore continues to be an attractive destination for companies seeking to establish their regional headquarters, driven by its concentration of top companies across several industries. Its strategic location for navigating geopolitical tensions is also advantageous.

Finally, the extension and enhancement of the CBD incentive scheme may encourage some landlords to explore redevelopment opportunities. This would generate displacement demand, exacerbating the already tightening supply conditions in the CBD.

Time to look outside the CBD?

Following the pandemic, the office decentralisation movement lost momentum. The adoption of hybrid-work models enabled some occupiers to opt for centrally located, high-quality office spaces in the CBD; they could now secure smaller, but better-quality spaces on their existing budget.

However, with CBD Grade-A rents projected to rise by 3 to 5 per cent annually over the next five years, large occupiers may face a significant escalation in their real estate operating costs.

Decentralised workspaces may be a viable, cost-effective option for occupiers who do not need to be in the CBD.

As of Q4 2024, rents of decentralised Grade-A space in offices and business parks outside the CBD stood at S$7.87 per sq ft (psf) a month; Grade-A office rents in the CBD were at S$10.94 psf a month. The difference could mean hefty cost savings for occupiers.

The upcoming influx of new business park space in 2025, led by Geneo in Singapore Science Park and the Punggol Digital District, could be attractive alternatives for eligible larger tenants seeking a campus-like environment at a fraction of traditional office rental costs.

Due to their tenant restrictions, business park rents are lower than those for offices. As of Q4 2024, city-fringe and suburban business park rents were at about S$6.21 and S$3.46 psf a month, respectively.

Decentralised office markets, which have shown a more stable growth trajectory than CBD spaces, are projected to rise 2 to 3 per cent a year over the next five years. CBD Grade-A office rents, on the other hand, are forecast to grow at 3 to 5 per cent annually – but in a more volatile fashion, closely tracking business cycles.

The stability of the market outside the CBD should be underpinned by the potential growth in new office supply. The current Government Land Sales Programme (for the first half of 2025) could yield at least approximately 1.8 million sq ft of new office spaces, all outside the CBD.

Moreover, the accessibility of decentralised workplaces is expected to improve significantly in the long term, with the development of new MRT lines, including the Jurong Regional Line and Cross Island Line.

Many occupiers are still hesitant to make the move to decentralised office spaces, primarily due to concerns about talent retention. While city-fringe locations such as the Alexandra Road/Harbourfront area and one-north have gained acceptance and pulled in a critical mass of technology companies, other locations would need to offer more compelling incentives.

To sweeten the deal, landlords could offer perks such as shuttle services, function halls, and place-making activities to create vibrant destination workplaces that elevate the occupier experience.

A workplace study could also give occupiers a better understanding of employee needs – for instance, whether a decentralised location is preferred due to proximity to employees’ homes.