Rent adjustments fuel ongoing cost-driven demand

• In Q3 2024, cost-driven leasing demand continued, with net absorption rising to 152,500 sqm. In the CBD, larger domestic occupiers, including insurance, law and TMT firms, secured favourable terms, while MNC tenants remained conservative and opted for renewals.
• In the decentralised submarkets, net absorption recorded 103,100 sqm. Diminishing rent disparity between some Grade B and Grade A projects continued to incentivise high-quality tenants to upgrade.

Two projects delivered 163,856 sqm in Q3 2024

• In the CBD, one new project of 91,161 sqm was delivered to the Nanjing W. Rd. submarket. With this new completion, the CBD’s vacancy rate continued to rise, up 0.6 ppts q-o-q to 16.2%.
• One project delivered 72,695 sqm of office space in a decentralised submarket. Although leasing in the new completion was slow, leasing activities, driven by rent, led the vacancy rate to decrease by 0.5 ppts q-o-q to 29.6%.

Rents continue to decline as tenant-favourable market conditions prevail

• Rents remain in decline amid supply pressure and limited demand. Overall market sentiment remains conservative. As rents fell by 5.0% q-o-q in the CBD, landlords further adjusted their rent expectations to maintain occupancy and combat decentralisation.
• In the decentralised submarkets, rents fell by 4.3% q-o-q, triggering upgrade and decentralisation demand. Projects with high vacancy and certain submarkets remain under pressure and offer attractive incentives amid the supply pipeline over the forecast horizon.

Outlook: Cost-driven relocations to continue amid persistent downward rent pressure

• Overall market rents are expected to remain in their downward cycle in the short term amid conservative market sentiment and large supply.
• Tenants are becoming more inclined to leverage the tenant-favourable market conditions for favourable leasing deals. Cost-driven upgrading will persist in the short term, while cost-saving relocations will contribute to net absorption in the decentralised submarkets.