Office sales market, on the other hand, continues to thrive in a low interest rate and high inflation environment.

International property consultant, Colliers International’s latest quarterly research report revealed that the Singapore office property market started the year on a mixed note – with the leasing market continuing to lose its lustre, while the sales market enjoyed robust activities in 1Q 2012.


The office leasing market in Singapore experienced a rent correction by up to 8.8 per cent quarter-on-quarter (QoQ) across all micro-markets in 1Q 2012.

In the Raffles Place/New Downtown micro-market, the average monthly gross rents for Grade A office space in 1Q 2012 recorded a steeper fall of 5.3 per cent QoQ, as compared to the 4.3 per cent QoQ correction in 4Q 2011.

Consequently, the average monthly gross rents for Grade A office space in this micro-market returned to the single-digit level of S$9.76 per sq ft as of end March 2012. The last time when the monthly gross rents for Grade A office space in this micro-market were below S$10 per sq ft was in 1Q 2011 – at S$9.72 per sq ft. Rents then were still on an uptrend.

Occupancy Rate

Activity in the office leasing market was subdued in 1Q 2012, as demand was dampened by the lingering debt issues in the Euro zone and slowing growth in the Chinese and Japanese economies.

These macro issues have caused corporate restructuring and a hiring freeze in some firms, while keeping many others – especially the large occupiers in the banking and finance industry – on the sidelines in 1Q 2012.

Compared to the global financial crisis in Year 2009, the occurrences were contained and not widespread. As such, the amount of shadow space in Grade A office buildings in the Raffles Place/New Downtown micro-market stayed flat at 100,000 sq ft as of March 2012.

Mr Calvin Yeo (杨光伟) ,Executive Director of Office Services, Colliers International, says, “The market is seeing some major lease renewals, such as those by Sumitomo Mitsui Banking Corporation at Centennial Tower, Morgan Stanley at Capital Square and Bank of Tokyo-Mitsubishi at Republic Plaza, as well as healthy pre-commitment rates achieved at new completions – both of which have contributed to keeping the overall islandwide occupancy rates of Grade A offices relatively stable in 1Q 2012.”

In the Raffles Place/New Downtown micro-market, occupancy eased moderately by 0.8 percentage point to 87.2 per cent as of March 2012. With the exception of the Orchard Road micro-market, occupancy rates of Grade A office space in the remaining micro-markets hovered between 92.8 per cent and 97.1 per cent in 1Q 2012, which are close to the 92.2 per cent to 96.9 per cent recorded in the preceding quarter.

Mr Yeo shares, “The average occupancy rate for Grade A office space in Orchard Road plunged by 7.4 percentage points to 84.4 per cent in 1Q 2012. This could mainly be attributed to tenant movements out of the precinct. For example, Singapore Power vacated their premises at Triple One Somerset and moved to Mapletree Business City, while Trafigura gave up space at Wheelock Place, following their move to Ocean Financial Centre.”

Capital Values

The office sales market was thriving in 1Q 2012, as evidenced from the quick take-up rate witnessed at new launches. For instance, all the 100 strata-titled office units at PS100 on Peck Seah Street were snapped up during its launch in March 2012 at an average price of S$3,000 per sq ft.

Meanwhile, projects launched in 4Q 2011 continued to gather sales momentum. By the end of March 2012, about 78 per cent of Robinson Square had been sold at prices ranging from S$2,750 per sq ft to S$3,029 per sq ft, while 85 per cent of the 442 units released in Paya Lebar Square found buyers at an average price of S$1,750 per sq ft.

These developments reportedly attracted a mix of investors and end-users from design agencies, shipping and logistics, investment, business consultancy and professional services firms.

Beyond the low interest rate and high inflation environment that kept investors active in the office sales market, the introduction of the additional buyer’s stamp duty imposed in the residential sector had investors looking for alternative asset options. This, in turn, played a part in raising the interest level in strata-titled office units.

Supported by the robust sales activities, the average capital value of Grade A office space in the Raffles Place/New Downtown area held firm for the second consecutive quarter at S$2,459 per sq ft in 1Q 2012.


Looking forward to the next nine months, the uncertain economic outlook will continue to put businesses on guard and weigh down occupier demand.

On the other hand, supply of office space available for lease is expected to grow, on the back of an impending two-tier space market – the pipeline of new office completions offered by various landlords, as well as an expected increase in shadow space available for sub-lease by tenants, if the economy stays in the doldrums.

The accumulation of these factors would continue to drag down rents.

Nonetheless, on a brighter note, although the overall business outlook for 2012 remains grim, recovery seems closer with the seemingly bottoming-out of the US economy.

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory, Colliers International, says, “Despite the economic uncertainty, there are industries such as those in mining and gas, private banking, equity investment, and information and communications services, which have remained optimistic and maintained their expansionary mode.”

For example, Rio Tinto has recently completed its lease of about 46,000 sq ft of space at Marina Bay Financial Centre Tower 3 to house their new regional headquarters. The mining company will be moving out of its current 27,000 sq ft premises at Centennial Tower.

Niche private foreign banks, such as Julius Baer and Union Bancaire Privee, have stepped up hiring to expand their wealth management business in Singapore, given the economic power shift towards Asia. Banco Santander has also opened a new branch in Singapore to capture a slice of the Asian trade flows.

On the equity investment front, firms which have recently set up offices in Singapore to tap into her fast growing reputation as an important market for the asset management industry include Eaton Vance Corp – one of the oldest investment management firms in the United States, and General Atlantic LLC (GA) – one of the world’s largest equity firms.

Ms Chia adds, “Though these players may be smaller space users compared to the financial institutions, these new demand drivers could help cushion the fall in occupier demand and mitigate rental erosion.

Hence, although office rents could continue to slide this year, the fall is expected to be capped at 15 per cent. This is sanguine when juxtaposed to the previous downturn in 2009 when office rents crashed 20 per cent to 50 per cent.

On the back of continued investor interest in light of the low interest rate and high inflation environment, office capital values, on the other hand, could hold relatively stable. However, if the rocky global environment prolongs, capital values may then decrease by up to five per cent for the whole of Year 2012.”