Property Herald: Patchy recovery in Singapore office market with looming glut in the horizon

Introduction

Office rentals increased in the second quarter of 2026 after fluctuating between quarterly growth and contractions in the past two years. However, the office leasing market is not out of the woods yet as demand remains anaemic.

Office rentals

After slipping by 0.2% in the 1Q 2026, office rentals recovered by 0.8% quarter on quarter (qoq) in the second quarter. The increase in office rentals are particularly robust in the fringe area with a 2.1% qoq growth, which is strongest quarterly rate of rental growth since 2Q 2024.

The stock of available office space and occupied space in the fringe area contracted equally by 118,400 sq ft in 2Q 2026 as HarbourFront Centre prepared to close for redevelopment. As a result, tenants relocate to other office buildings contributing to the rise in office rentals in the fringe area. HarbourFront Centre will cease operation by the end of July to make way for a 33-storey office and retail building.

Office price

The capital values of office space in the central region increased by 0.4% qoq in 2Q 2026, marking the second consecutive quarter of growth after five quarters of decline. However, the price appreciation in the April to June quarter is uneven with prices of office space in the prime central area rising 0.7% qoq while office capital values in the fringe area fell 1.5% qoq.

The office vacancy rates in the fringe area is creeping up from 11.2% in 4Q 2025 to 11.4% in the second quarter, contributing to the decline in office prices in this submarket. The median prices of office space in the central area and fringe area are $2,452 psf and $2,154 psf respectively.

Office demand

The demand for office space is anaemic in the second quarter with only 86,100 sq ft of office space taken up, down from 280,000 sq ft growth in office demand in the preceding quarter.

By contrast, net office supply increased by 204,500 sq ft in 2Q 2026, which is not fully absorbed by the market.

A large segment of the new office space measuring 441,300 sq ft is located in the Downtown Core which is from the completion of Shaw Tower. As the net office demand in the Downtown Core increased by a smaller 53,800 sq ft, the office occupancy rate in this submarket slipped by 0.8% in the second quarter to 89.9%.

Office market outlook

In the coming 18 months, around 968,800 sq ft of office space is projected to be completed. Based on the average demand for office space of 369,600 sq ft annually in the past three years, the new office supply may not be fully taken up. Furthermore, an additional 3.42 million sq ft of office space is expected to be completed in 2028, which could lead to a glut in the office market. As a result, this would deflate office rental.

Future supply of office space in Singapore

Source: Mogul.sg Research

Artificial intelligence (AI) is a double-edged sword. It could spur demand for office space, such as from technology companies and business service firms. At the same time, artificial intelligence could also cause demand destruction in the office market as corporate decision makers look for ways to use AI to replace office workers, thereby reducing the demand for office premises.

Unless significant new office demand materialise in the next few years, the risk of an office glut after 2027 is relatively high.