2025 Q2 Market Report
by Desmond Ng • 15th September 2025
Flight to Value
Singapore's commercial property market demonstrated resilience and divergent trends across sectors during the second quarter of 2025, reflecting broader economic uncertainties and evolving occupier preferences. The office market experienced a notable bifurcation, with premium Category 1 offices recording a 3.2% quarterly decline in median rents to S$11.68 per square foot, while Category 2 properties continued their upward trajectory with a 2.7% increase to S$6.52 per square foot. This divergence underscores a flight-to-value mentality among tenants amid ongoing global economic and geopolitical uncertainties.
The retail sector showed signs of recovery, with rental growth of 0.9% quarter-on-quarter reversing the previous quarter's decline, while the industrial and business parks segment maintained its remarkable momentum with the JTC All-Industrial Rental Index posting its 19th consecutive quarterly increase of 0.7%. Vacancy rates across the office market improved marginally to 11.4%, supported by active leasing in new developments and backfilling activities.
Against the backdrop of a challenging Asia-Pacific investment environment, where total commercial real estate investment reached US$30.9 billion : down 17% quarterly but up 22% year-on-year, Singapore's market fundamentals remain relatively stable, positioning the city-state as a defensive play in an uncertain regional landscape.
Office Market
The Singapore office market in Q2 2025 presented a tale of two segments, with premium and secondary properties moving in opposite directions as occupiers navigated an increasingly cautious business environment. The Urban Redevelopment Authority's latest data revealed a stark divergence between Category 1 and Category 2 office spaces, reflecting broader market dynamics and tenant preferences in an uncertain economic climate.
Category 1 offices, representing the better-quality buildings in Singapore's core business districts, experienced their most significant quarterly decline in recent memory, with median monthly rents falling 3.2% to S$11.68 per square foot in Q2 2025, down from S$12.07 per square foot in the previous quarter. This decline occurred despite an improvement in vacancy rates for this segment, which eased to 11% at the end of Q2 from 11.7% at the end of Q1, primarily attributed to strong absorption at IOI Central Boulevard Towers, which achieved approximately 85% commitment by quarter-end.
Conversely, Category 2 offices demonstrated remarkable resilience, posting their third consecutive quarter of rental growth with a 2.7% increase to S$6.52 per square foot in Q2 2025. This segment has shown consistent momentum, following quarterly gains of 1% in Q1 2025 and 1.3% in Q4 2024, indicating sustained demand for more affordable office space as businesses prioritize cost optimization.
The URA's office rental index for the Central Region reflected this mixed performance, declining 0.3% quarter-on-quarter in Q2, reversing the 0.3% rise recorded in Q1 2025. Meanwhile, the office price index contracted by 1.1% quarterly, following a 0.2% decline in the preceding quarter, suggesting continued pressure on capital values.
Supply dynamics remained favorable for landlords, with no new office completions in Q2 2025. The pipeline supply stood at approximately 9.3 million square feet of gross floor area at quarter-end, marginally higher than the 9.2 million square feet in Q1. Occupied office space increased by 96,875 square feet of net lettable area during the quarter, contrasting sharply with the 10,764 square feet decline in Q1, while the overall stock decreased by 193,750 square feet due to redevelopment activities.
The islandwide vacancy rate improved to 11.4% at the end of Q2 from 11.7% in the previous quarter, driven by active leasing in recently completed developments including Keppel South Central and Paya Lebar Green, alongside backfilling of space vacated in older properties. This improvement in occupancy metrics, despite the rental decline in premium segments, suggests that landlords are prioritizing occupancy over rental growth in the current environment.
Transaction activity in the strata office market showed encouraging signs, with the Central Region recording 91 deals in Q2, representing a 32% increase from 69 transactions in the previous quarter. This uptick in activity, despite price declines, indicates continued investor interest in Singapore's office market as a long-term play.
Retail Market
Singapore's retail property sector demonstrated a notable turnaround in Q2 2025, with rental growth returning after a challenging first quarter. The URA's retail rental index for the Central Region posted a 0.9% quarter-on-quarter increase, effectively reversing the 0.5% decline recorded in Q1 2025. This recovery reflects improving consumer sentiment and retailer confidence as the economy stabilized following earlier uncertainties.
Islandwide prime retail floor rents showed consistent momentum with a 0.7% quarterly growth, indicating that premium retail locations continued to command pricing power despite broader market challenges. The retail price index, however, moderated significantly, rising just 0.1% in Q2 2025 compared to the robust 1.9% increase in the previous quarter, suggesting that while rental markets recovered, capital value appreciation remained subdued.
Vacancy rates in the retail sector edged higher to 7.1% at the end of Q2 from 6.8% in Q1, representing a 0.3 percentage point increase that reflects ongoing structural challenges in the retail landscape. This uptick in vacancy occurred despite the rental recovery, indicating that landlords may have achieved rental growth through selective leasing rather than broad-based demand improvement.
The retail sector's performance in Q2 2025 aligns with broader regional trends, where retailers have become increasingly selective about expansion plans. Market observers noted that retailers' need for expansion is generating spillover demand for non-CBD space due to limited options in central business districts and other core locations. This trend suggests a potential geographic shift in retail demand patterns, with secondary locations gaining traction as prime CBD space becomes increasingly scarce and expensive.
Industrial & Business Parks
Singapore's industrial property market continued its remarkable run of consistent growth in Q2 2025, with the JTC All-Industrial Rental Index posting its 19th consecutive quarterly increase of 0.7%, up from 0.5% in Q1 2025. This sustained momentum underscores the resilience of Singapore's industrial sector and its critical role in supporting the city-state's manufacturing and logistics capabilities.
Business parks emerged as the standout performer within the industrial segment, recording rental growth of 1.2% quarter-on-quarter, leading the broader industrial market's advance. This outperformance reflects the premium nature of business park developments and their appeal to technology companies, research and development operations, and other knowledge-intensive industries that require high-quality industrial space.
Vacancy rates in the industrial sector showed encouraging improvement, easing from 24.1% to 23.3% during the quarter, representing a 0.8 percentage point decline that suggests strengthening demand fundamentals [10]. The overall industrial occupancy rate reached 88.8% of the total 54.0 million square meters of industrial space, indicating healthy absorption despite ongoing supply additions.
The industrial price index demonstrated robust growth of 1.4% quarter-on-quarter as of Q2 2025, reflecting strong capital value appreciation alongside rental growth. This dual momentum in both rental and capital values suggests that investors maintain confidence in the long-term prospects of Singapore's industrial property sector.
Supply dynamics remained manageable, with approximately 4.0 million square meters of industrial space expected to be completed by 2030, representing a measured pace of new supply that should support continued rental growth. Limited new supply scheduled for completion over the next two quarters, around 0.5% of total stock ; provides near-term support for occupancy and rental metrics.
Investment Climate & Regional Context
The broader Asia-Pacific commercial real estate investment landscape in Q2 2025 presented a mixed picture that provides important context for Singapore's market performance. Total commercial real estate investment across the region reached US$30.9 billion in Q2 2025, representing a 17% quarter-on-quarter decline but a robust 22% year-on-year increase. This divergent performance reflects the ongoing volatility in investment flows while suggesting underlying resilience in annual comparison terms.
Sector-specific investment patterns revealed notable shifts in investor preferences, with retail investment surging 63% and living sectors gaining 29%, indicating renewed interest in consumer-facing and residential-adjacent property types. These trends suggest that investors are positioning for post-pandemic recovery themes while seeking defensive characteristics in uncertain economic times.
Singapore's position within this regional context appears relatively stable, with the city-state continuing to benefit from its status as a regional financial hub and gateway to Southeast Asian markets. The divergent performance between premium and secondary office segments reflects broader regional trends where investors and occupiers are becoming increasingly selective about quality and location.
Currency stability and Singapore's strong institutional framework continue to attract international capital, even as regional investment flows show volatility. The sustained growth in industrial rental indices and the recovery in retail metrics position Singapore as a defensive play within the broader Asia-Pacific commercial real estate universe.
Outlook & Implications
Looking ahead, Singapore's commercial property market faces a complex environment characterized by divergent sector dynamics and evolving occupier preferences. Property consultants are projecting modest rent growth for Central Business District Grade A office space, with expectations ranging from minus 1% to plus 3% for full-year 2025. This cautious outlook reflects the limited new office supply pipeline in premium segments over the next few years, which should provide some support for rental levels despite ongoing demand uncertainties.
The office market's bifurcation between Category 1 and Category 2 properties is likely to persist as businesses continue to prioritize cost optimization while maintaining operational flexibility. Companies are increasingly focused on rightsizing their space requirements and seeking higher efficiency per square foot, trends that favor well-located, competitively priced properties over premium-priced alternatives.
For the industrial sector, the 19-quarter growth streak in rental indices suggests strong underlying fundamentals that should continue to support performance. Singapore's role as a regional manufacturing and logistics hub, combined with ongoing supply chain diversification trends, provides a solid foundation for sustained demand. The measured pace of new supply additions should help maintain the balance between supply and demand that has characterized recent quarters.
The retail sector's recovery in Q2 2025 provides cautious optimism, though structural challenges remain. The shift toward omnichannel retail strategies and changing consumer preferences will continue to influence space requirements and rental dynamics. Landlords who can adapt their properties to meet evolving retailer needs are likely to outperform in this environment.
From an investment perspective, Singapore's commercial property market offers relative stability within a volatile regional context. The city-state's strong institutional framework, currency stability, and strategic location continue to attract international capital seeking defensive characteristics. However, investors should remain selective, focusing on quality assets in prime locations with strong tenant profiles and flexible lease structures.
The broader economic environment, including ongoing trade tensions and geopolitical uncertainties, will continue to influence business confidence and real estate demand. Leading indicators suggest that business outlook and manufacturers' confidence are showing signs of weakness, which could eventually impact real estate demand across all sectors. However, Singapore's diversified economy and strong fundamentals provide some insulation against external shocks.