Cautious optimism for Singapore occupier market in 2024

Singapore’s property leasing market withstood macroeconomic and geopolitical turbulence to post a full-year rental growth in 2023, despite falling rents for some segments in H2 2023. Underpinned by the prospect of global and domestic economic recovery in H2 2024, there is potential for Singapore’s property leasing market to trend higher on a stronger second half.

No respite to rent growth foreseen for the logistics sector

The logistics asset class saw another year of relentless rental growth, although the 8.4% rise was a slight moderation from the 9.2% posted in 2022. The supply crunch that drove this growth in 2023 will not likely ease until 2025, as limited completions are scheduled in 2024. At the same time, demand is expected to stay healthy, given the risk of supply chain disruptions due to geopolitical tensions keeping inventory holdings elevated. The resulting tight vacancy should drive further rent growth, although occupier rent hike resistance could set in and moderate growth to possibly below 8% in 2024.

Slow but steady growth for prime retail rents

The retail asset class racked up a steady performance in 2023. The tourism and MICE (meetings, incentives, conferences and exhibitions) sectors are recovering, following the post-COVID opening of international borders. At the same time, a tight labour market underpins sustained domestic spending. As such, rents of prime floor space across all three sub-markets, namely, Prime, Secondary and Suburban, posted moderate q-o-q growth. The same factors will likely prevail in 2024, supporting another year of steady growth in rents.

Office rents could turn around in H2 2024

Despite slow demand caused by weak business sentiment and consolidation in the technology sector, the office rent contraction in H2 2023 was more modest than expected. While demand could stay soft in H1 2024, there is cautious optimism for a rebound in H2 2024. A hoped-for brighter economic outlook could unleash pent-up demand and spur new setups and entrants, particularly by firms in the professional services, consumer, non-bank financial and medical sectors. The surge in completions in 2024 should trigger a new wave of flight to quality. Rents could stage a recovery in H2 2024, potentially offsetting the contraction in H1 2024 to clock a full-year growth within 3%.

Private home rent growth pressure could ease further in 2024

The residential leasing property market transitioned into a tenant’s market by H2 2023. New completions spiked as the COVID-19-related construction backlog came on stream. Yet, leasing demand softened as heightened macroeconomic headwinds weighed on business sentiment and expatriate hirings. Local leasing demand also eased, with interim demand dissipating as tenants exited the leasing market to move into their new homes. This took some pressure off rents, with full-year growth estimated to have moderated to within 13% from 29.7% in 2022. Significantly, rents for prime properties contracted in Q3 2023 as sky-high levels drove demand to more affordable market segments. Prime rents could continue to trend down in H1 2024 before stabilising on the back of the expected improvement in economic conditions in H2 2024. Meanwhile, rents for mass-market homes should stay on a gentle growth path and support an island-wide rent growth of up to 3% for the entire 2024.

Figure 1: Positive rental growth foreseen for all key property sectors in 2024