SINGAPORE - Even as many people continue to work from home, the office rental market in Singapore's central business district (CBD) is expected to improve, although vacancies climbed in the last quarter.

Net demand for Grade A office space in the CBD reached 215,000 sq ft in the third quarter, according to data from commercial real estate services firm Cushman & Wakefield on Thursday (Oct 7).

This year, as at the third quarter, net demand hit 283,000 sq ft, compared with 183,000 sq ft over the same period in 2020.

But the net supply of available space also remained high, contributing to a vacancy rate of 5.8 per cent in the third quarter, up from 4.6 per cent in the previous quarter.

Mr Wong Xian Yang, Singapore head of research at Cushman & Wakefield, said the vacancy rate is expected to narrow going forward.

"A substantial amount of Grade A vacant spaces are currently under negotiation and are likely to be snapped up over the next few months," he added.

"The positive economic outlook for Singapore and the recovering global economy, coupled with accelerated vaccinations - which will allow further reopening of key advanced economies - will be supportive of Singapore's open economy and help to prop up business sentiment."

Rents for Grade A office space in the CBD grew for the second consecutive quarter, rising by 0.5 per cent quarter on quarter in the third quarter.

The advance was led by Marina Bay (1.6 per cent quarter-on-quarter growth), Raffles Place (0.3 per cent) and Shenton Way/Tanjong Pagar (0.1 per cent).

Rental growth for Grade B office space in the CBD turned positive in the same quarter, expanding by 0.1 per cent quarter on quarter after four consecutive quarters of decline.

Market recoveries have been historically characterised by a recovery in Grade A, followed by Grade B, office rents, said Cushman & Wakefield Research.

Mr Mark Lampard, executive director and head of Singapore commercial leasing at Cushman & Wakefield, said the country remains an attractive business destination, particularly among financial services and tech firms, Chinese companies, family offices as well as in growth sectors such as healthcare and life sciences.

"These sectors will remain the key drivers of office space demand for the rest of the year, going into 2022," he added.