Constrained Supply Props Up Singapore Office Rents Even as Tenant Demand Cools

Even as demand for office space cools, Singapore’s CBD Grade A rents have nudged upward, climbing 0.3 % quarter‑over‑quarter in Q4 2025 to S$9.96 per square foot and delivering a 1.8 % full‑year gain that outpaces the 1.1 % rise seen in 2024. The market’s resilience is striking given that net take‑up fell to 88,000 sq ft in the last quarter, yet the full‑year net demand of 941,000 sq ft remains the strongest since 2019. This paradox stems largely from a tight supply environment, where limited new Grade A office stock for 2026‑2027 keeps vacancy low and gives landlords pricing power across the CBD. Limited new Grade A supply is expected to persist through 2027. Vacancy eased to 6.7 % in Q4 2025, a modest 0.3‑percentage‑point drop, while the development pipeline stays constrained, with no major Grade A completions announced for the coming year. Rental momentum remains positive despite the cooling of net demand. Premium assets have benefited most from these dynamics. Grade AAA rents surged 2.5 % year‑on‑year in 2025, the highest increase since 2022, and the Beach Road/Middle Road sub‑market posted a 1.0 % quarter‑over‑quarter rise, the strongest since 2010. Marina Bay and Raffles Place saw vacancies fall by more than one percentage point, reinforcing the upward pressure on rents in the most coveted towers. Larger multinationals, which can absorb higher costs, continue to occupy top‑tier buildings, while smaller firms feel margin pressure and are more likely to downsize. This “flight‑to‑quality” trend means that demand is increasingly concentrated in trophy assets, further boosting premium rent growth. Economic headwinds also play a role. Companies are focusing on margin improvement amid geopolitical uncertainty, and smaller US firms with higher leverage are less able to push rent levels. Meanwhile, wealth concentration among large corporations fuels demand for high‑quality space, even as generative AI adoption slows headcount growth in non‑software sectors. Tariff and operational cost pressures add another layer of caution for tenants, prompting many to reconsider office sizing. Looking ahead, Savills projects a 2 % rent increase for Grade A CBD offices in 2026, assuming the supply remains limited. The forecast anticipates modest quarter‑over‑quarter gains despite cooling net demand, and vacancy rates are expected to stay low through 2027. Investor appetite is rising, driven by falling interest rates and higher rents, with notable transactions such as Khazanah Nasional and Temasek listing Marina One for up to S$6 bn and Hongkong Land selling a one‑third stake in Tower 3 of Marina Bay Financial Centre for S$1.45 bn. Capital is likely to flow toward high‑quality, low‑vacancy Grade A properties, while non‑Grade A buildings may face rising vacancy and rent pressure as the tenant base contracts.