Although the past year saw flat rental rates, Singapore’s office landlords are preparing to tighten their grip as vacancy rates dip and the economy outperforms expectations.
Readers might be surprised to learn that the local economy grew by a solid 4.0% in 2024, beating official forecasts and fueling optimism across the board. This economic vigor helped net occupied office space grow by 23,000 sqm in the fourth quarter alone, pushing the overall vacancy rate down to 10.6%.
Even the URA Office Price Index managed a 1.8% increase for the full year, reversing the 4.2% decline seen in 2023, while strata office transactions rose slightly to 327 deals. This steady activity indicates that investor confidence in commercial assets remains stable despite broader economic variables.
While rents were largely flat for 2024, the landscape is rapidly changing as we look toward the future. This trend mirrors the robust activity seen in the collective sales market, where UOL and CapitaLand’s Thomson View acquisition for $810 million marked 2024’s largest en bloc deal. In the third quarter of 2025, CBD Grade A office rents nudged up by 0.5%, while vacancy in that prime segment tightened to just 4.7%.
Even decentralised rents inched up, underscoring the recovery. Landlords, sensing they now hold the upper hand, are becoming less willing to negotiate face rents or offer those delightful rent-free periods tenants have enjoyed recently. Industry observations suggest there is limited room for rent adjustments to fill remaining space in high-occupancy buildings.
With rental growth projected to hit 2.2% in 2025 and accelerate to a hefty 4% to 7% by 2026, companies hoping for a discount might find themselves disappointed.
The fundamental issue here is a looming supply shortage, particularly in the coveted CBD Grade A market. Limited future supply represents a serious constraint, forcing many occupiers to settle for short-term leases or renew what they have to avoid moving.
Meanwhile, demand is ramping up from fresh entrants in the energy, tech, and insurance sectors, specifically those from China and India. Many of these tenants are hunting for fully fitted spaces to save on upfront costs, and there is a clear flight to quality driven by staff attraction goals.
As market polarization deepens, with prime spots reserved for prestige and budget options for the cost-conscious, landlords are poised to turn aggressive on pricing, leaving tenants with fewer relocation options.
