(Sept 23): Singapore’s prime office market is showing signs of softening as an increase in new space push vacancies to the highest level in over two years, while a jump in rents runs out of steam.

Vacancy rates for so-called Grade A offices in the financial hub’s central business district rose for the second consecutive quarter to 8.3% in July-September, according to data released on Monday by property consultancy Jones Lang LaSalle Inc. That’s the highest level since the first quarter of 2022.

Gross effective rent for the spaces was unchanged at S$11.50 (US$8.90 or RM37.43) a month psf compared to the previous three months, after a 0.7% increase in the prior quarter, it said.

The rise in vacancies is largely driven by the opening of a new office building, IOI Central Boulevard Towers, which has about 1.26 million sq ft of office space. But JLL said “global economic sluggishness” and a delay in US interest rate cuts had also impacted demand. The Federal Reserve slashed its benchmark rate by a half percentage point last week.

While Singapore’s office market has skirted the downturns seen in other major cities worldwide, it has not been immune as key sources of demand for office space pull back, including in the finance and technology sectors. Vacancy rates may remain elevated over the next few quarters, Andrew Tangye, the head of office leasing and advisory for JLL Singapore, said in a statement, as companies grapple with higher operating costs.

While there remains interest in prime office space — JLL’s Tangye pointed to a significant portion of floors at a prime tower given up by Meta Platforms Inc being re-let or attracting negotiations from potential tenants — locations outside Singapore’s city centre have struggled in particular. Authorities recently rejected a bid from a consortium of major developers to construct a new business district in the country’s west, after judging the proposed price to be too low.

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