Why office tenants in Singapore won't relocate until 2025

Right-sizing is a more attractive option whilst they adopt a wait-and-see approach.

According to a Savills report, with geopolitical tensions and economic uncertainties, there seems to be an unprecedented lack of a willingness for tenants to move in Singapore’s office market. 

For the third quarter of 2023, leasing transactions were low. For some firms, despite them wanting expansions, there are no approvals for capital expenditure from the senior management. Similarly, due to much higher borrowing costs, landlords have little appetite to stomach tenants' fit-out costs. 

Here’s more from Savills:

Consequently, with both landlords and tenants both facing constraints, the latter is less inclined to relocate, resulting in the lower number of office leases in the market. Also, as new supply this year has been relatively low, the tenants that had the budget to relocate can only do so in the years 2025 and 2026. For them, if their leases are running out, they seek for short term renewals. 

When the market is hot, these short-term renewals often come at significantly higher rents. However, this time, landlords granting shorter-term lease extensions of 12 to 18 months are charging a more reasonable markup than before. 

In addition, landlords do not feel the pressure yet (despite a substantial amount of shadow space) as leases of the major tenants are mostly expiring in 2025. This is particularly so for the premium offices, whereby the rents of these buildings are still holding up due to the lack of supply.