Limited supply of suitable office space may be constraining occupier demand, even as rents continue to rise
Savills Singapore noted that net absorption of Grade A office space in Singapore's Central Business District (CBD) slowed in the first nine months of 2026, even as vacancy rates continued to decline.
A total of 658,000 sq ft of net absorption was recorded in the first three quarters of 2026, compared with 853,000 sq ft during the same period in 2025, representing a decline of approximately 23%. However, the lower take-up may not be solely due to weaker occupier demand, as the limited supply of suitable office space could also be constraining leasing activity.
Data compiled by Savills Singapore showed the vacancy rate of CBD Grade A offices declined for the fourth consecutive quarter, falling by 0.7 of a percentage point (ppt) quarter-on-quarter (QoQ) to 4.9% in Q3 2026. This marked the lowest vacancy rate since Q1 2020, when vacancy stood at 4.3%.
Despite moderate leasing activity, average CBD Grade A office rents rose for the 10th consecutive quarter, increasing by 1.4% QoQ to a record high of S$10.56 per sq ft in Q3 2026.
Across the three office sub-grades, vacancy rates declined in Q3 2026. Grade AAA office vacancy fell for the seventh consecutive quarter, from 3.1% in Q2 2026 to 2.2% in Q3 2026, the lowest level since Q1 2011, when vacancy stood at 1.3%.
The decline reflects the continued absorption of available space within premium office developments, especially newer buildings that have attracted occupier demand. Vacant floors have generally been leased up quickly, resulting in limited availability and strong occupancy levels across the segment.
At 2.2%, Grade AAA vacancy was also significantly below the historical average of 6.4% recorded between Q1 2016 and Q4 2025.
Meanwhile, Grade AA office vacancy declined by 1.0 ppt QoQ to 7.5%, the lowest level since Q2 2025. The limited availability of premium office space in Grade AAA buildings may have prompted some occupiers to seek alternatives in Grade AA developments, especially in newer assets offering high-quality specifications at a more competitive cost. Grade A office vacancy also declined, albeit more modestly, by 0.2 ppt to 5.6%.
Across the seven CBD micro-markets tracked by Savills, four recorded QoQ declines in vacancy rates, while the remaining three saw increases.
Tanjong Pagar recorded the largest improvement, with vacancy declining by 1.5 ppts to 17.8%, largely driven by the continued leasing up of Keppel South Central, which obtained its Temporary Occupation Permit in Q1 2025.
Marina Bay vacancy declined by 1.2 ppts to 2.1%, the lowest level since Q3 2011. Beyond leasing activity at IOI Central Boulevard Towers, occupancy levels also improved across other premium office buildings in the micro-market, with vacancies in many buildings falling below 5%.
In contrast, Beach Road/Middle Road recorded its fourth consecutive quarterly increase in vacancy, rising by 0.5 ppt to 8.5%, largely attributable to higher vacancies within older Grade A office buildings. (See Table 1)
New Grade A CBD office completions are expected to be even lower in 2027, with Newport Tower being the only Grade A CBD office development scheduled for completion next year. The amount of new office space it will introduce is relatively modest. Against this backdrop, occupiers seeking expansion or relocation opportunities may continue to face a shortage of quality space, particularly in prime CBD micro-markets.
Ashley Swan, Executive Director, Commercial & Industrial, Savills Singapore, said: "With fewer relocation options and high fit-out and reinstatement costs, occupiers may find it more practical to renew their existing leases, particularly if they do not require significantly more space. Companies looking to expand may need to reassess their space requirements or consider alternative office locations and specifications to manage occupancy costs."
Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore, said: "The continued increase in office rents has been driven primarily by limited supply rather than a significant rise in demand. With fewer suitable spaces available, it is becoming increasingly difficult to gauge the full extent of occupier demand, as some requirements may not translate into actual take-up. With vacancy rates below their long-term average and limited new supply expected in 2027, we expect rents to rise by around 5% this year and a further 5% to 7% in 2027."
Table 1: Micro-Market Grade A Office Rents and Vacancy Rates, Q3/2026