The latest office market research conducted by Colliers International revealed that the Singapore office property market continued its path to strong recovery in 1Q 2011 – underpinned by the burgeoning business confidence that spilled over from Singapore’s strong economic performance in 2010.

Average Monthly Gross Rents
Average monthly gross rents of Grade A office space in the Raffles Place/New Downtown micro-market chalked up a further growth of eight per cent quarter-on-quarter (QoQ) to reach S$9.72 per sq ft in 1Q 2011, even after recording two consecutive quarters of double-digit growth in rents.

Following suit, average monthly gross rents of office space in other micro-markets in the Central Business District (CBD) also climbed up by up to 10.2 per cent QoQ in 1Q 2011.

Mr Calvin Yeo (杨光伟), Executive Director of Office Services, Colliers International, says, “The growth in the local office market – specifically, the Raffles Place/New Downtown micro-market – was spurred, in part, by the robust occupier demand for new and upcoming office buildings, as firms rushed onboard the flight to quality before the affordability tapers off.”

Average Occupancy Rates
Amid the continued optimism in the market, average occupancy rate of Grade A office space in the Raffles Place/New Downtown micro-market fell for the first time in six quarters, from 98.1 per cent in 4Q 2010 to 95.7 per cent in 1Q 2011.

The marginal drop in occupancy rate was contributed by the completion of OUE Bayfront which is currently estimated to be more than 70 per cent leased, and the phased return of space by occupiers of older office buildings, such as 16 Collyer Quay, after their shift to new office developments, such as the Marina Bay Financial Centre Tower 1 and 2.

Weighed down by the correction in the Raffles Place/New Downtown micro-market, the overall average occupancy rates for Grade A office micro-markets in the CBD eased marginally from 94.3 per cent in 4Q 2010 to 94.2 per cent in 1Q 2011.

Average Capital Values
The office property sales market remained upbeat in 1Q 2011 – supported by the continued low interest rate environment, high liquidity, as well as limited supply of saleable prime Grade A office space.

Growth in the average capital value of Grade A office space in the Raffles Place/New Downtown micro-market, hence, picked up pace – rising 11.2 per cent QoQ to reach S$2,322 per sq ft in 1Q 2011, its fastest quarterly growth since recovery a year ago.  Nonetheless, the average capital value of Grade A office space in the Raffles Place/New Downtown micro-market is still some 17.5 per cent below its previous peak in 3Q 2008.

Ms Tay Huey Ying (郑惠匀), Director of Research & Advisory, Colliers International, says, “Singapore’s office property market is expected to continue its growth trajectory in 2011, given positive impact on the market resulting from better-than-expected growth reported in the United States (US) and some European states, notwithstanding their debt overhang.

Additionally, with Asia gradually replacing the West as the fastest-growing region in the world, more wealth management funds, such as Belmont Investments, are setting their footprints in Asia – choosing Singapore as one of the preferred destinations due to its strategic location and conducive business environment.

This is also in line with the Government’s effort in establishing Singapore’s position as the Global-Asia Hub, a location of choice in Asia for global companies, as well as a launch pad for Asian enterprises to globalise.”

Consequently, occupier demand for office space is expected to remain strong.

The rosy demand outlook is spurring developers to commence the development of major new projects in 2011 – so as to ride on the new wave of office demand that is expected to be sustained into the medium term, in which a moderation in the supply of new office completion is expected.

While the 3.1 million sq ft of new office space slated to be completed in 2011 is still on schedule, continued flight to quality has seen overall pre-commitment rates edging up to about 60 per cent in 1Q 2011, from 50 per cent in 4Q 2010.  

Additionally, apart from potential re-development of aging office blocks which could mitigate the net addition to stock, some owners of older office buildings have temporarily removed their space from the market to conduct asset enhancement works, so as to raise their offerings to existing and potential tenants.

Ms Tay concludes, “Office rents for the whole of 2011 is expected to trend up, albeit at a milder range of between 15 per cent and 20 per cent, down from almost 30 per cent in 2010.”