Rental Decline Eases on the Back of Healthy Occupier Demand

International property consultant, Colliers International’s latest quarterly research report revealed that demand for office space in the final quarter of 2012 remained healthy – with new take up of prime office space largely supported by tenants taking first-mover advantage on flight to quality.  

Meanwhile, rents and capital values of Grade A office space in Singapore geared closer towards a stabilisation level at the close of 2012.   

The encouraging performance is in response to the series of stimulating measures implemented across the globe – including quantitative easing, interest rate cuts and loosened banks’ reserve requirements, among others – to spur economic growth.  Intermittent positive economic news released in 4Q 2012 had also contributed to the positive business sentiment.

Occupancy Rates

Underpinned by a steady occupier demand, the average occupancy rate of Grade A offices in the Central Business District (CBD) further strengthened by one-percentage point from 93.1 per cent in 3Q 2012 to 94.1 per cent in 4Q 2012 – the highest level in almost two years.  

Notably, the sub-urban micro-market recorded the highest jump in occupancy rates during the quarter.  The average Grade A office occupancy rates in the sub-urban micro-market rose 4.3 percentage points in 4Q 2012 to end the year at 95.6 per cent. 

Mr Calvin Yeo (杨光伟), Executive Director of Office Services, says, “The increase in demand for Grade A sub-urban office space was, in part, an outcome of some large space occupiers relocating out of the CBD for cost efficiencies – given the cautious economic outlook, improved quality and offerings of sub-urban developments, as well as Business Continuity Planning being demand drivers for office space outside the CBD.   

Another contributing factor came from the demand by tenants who were previously sourcing or have been occupying industrial space, but no longer fall within the list of allowable users stipulated by the authorities.”    

Nonetheless, demand for office space in the CBD remained healthy, with new space leased to tenants taking flight to quality.  


The strengthening of occupancy rates, on the back of firm occupier demand, helped cushion rental decline for yet another quarter.  

Average monthly gross rents for Grade A office space in the CBD reached S$8.32 per sq ft in December 2012, easing by 0.6 per cent on a quarter-on-quarter (QoQ) basis.  This is the slowest pace of decline, since the market headed south exactly a year ago.  

Consequently, for the entire 2012, the average monthly gross rents for Grade A office space in the CBD fell by only 6.9 per cent, lower than the 10-15 per cent decline that was forecast at the start of the year. 

Rents in 2012 had held up better than expected, primarily due to resilient occupier demand throughout the year – with majority of the tenants renewing their lease to ride out volatilities in the market.

Mr Yeo adds, “Landlords’ increasing willingness to sub-divide their floor plates and negotiate with a wider tenant base have somewhat mitigated the vacancy rate that could have been formed from the stock of new and secondary office space released over the past 12 months.”   

In the Raffles Place/New Downtown micro-market, the average monthly gross rents for Grade A office space fell 1.1 per cent QoQ in 4Q 2012 to S$9.16 per sq ft – half of the 2.2 per cent QoQ slide recorded in 3Q 2012.  This brought the full year’s drop in rents to 11.2 per cent – the most significant decline among all micro-markets due to higher supply pressures from new office completions in the area. 

Capital Values

After the momentary breather in 3Q 2012, office sales activities picked up pace in 4Q 2012, on the back of a rush of office en bloc investment deals sealed before the end of the year. 

In December 2012, the market saw the conclusion of three major investment deals – including Mapletree Commercial Trust’s acquisition of Mapletree Anson for S$680 million; DBS Group Holding’s purchase of a 30-per-cent stake in Marina Bay Financial Centre Tower 3 for S$1.035 billion; and United Engineers’ acquisition of 79 Anson Road for S$410 million.  

Underpinned by sanguine investors’ sentiments, the average capital value of Grade A office space in the Raffles Place/New Downtown micro-market held firm for the second consecutive quarter at S$2,447 per sq ft in 4Q 2012.  Consequently, the average capital value for the whole year dropped by a mere 0.5 per cent from S$2,459 per sq ft recorded in 4Q 2011.


Looking ahead, in 2013, Singapore’s office property market looks likely to continue to experience firm occupier and investor demand.  

Although major banks around the world – including Credit Suisse, Merrill Lynch and UBS – are set to downsize, the banking scene in Singapore still receives interest from small- to mid-sized banks who are seeking expansion.  The Republic is also still the choice destination for private equity and venture capital firms investing in the region. 

Additionally, businesses in the resilient legal, telecommunications, energy and business services sectors are expected to continue to expand and/or look for better quality office space; thereby, providing some support to the market.  Meanwhile, leasing activities are also expected to be boosted by tenants who are displaced due to the intended re-development works at their existing premises, such as those at Robinson Towers and the International Factors Building along Robinson Road.   

A healthy appetite for de-centralised office space is expected to continue in 2013 – given the improved quality and offerings of new and upcoming office buildings in the city fringe and sub-urban areas.  

Financial institutions that need to set up a secondary office space in the city fringe or sub-urban area to comply with the Monetary Authority of Singapore’s guidelines on Business Continuity Planning is also a potential demand driver for office space outside the CBD. 

Nonetheless, if weaknesses in the externally-oriented sectors related to the US fiscal cliff or an escalation of the ongoing Eurozone debt crisis persist, demand may still come under pressure in 2013 – with tenants adopting a wait-and-see attitude towards new take-ups for new and secondary space that is slated to be released over the next five years.  

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory, Colliers International, concludes, “Hence, in spite of Singapore’s strengthening economic and property market fundamentals, a challenging global economic environment, coupled with mounting supply pressures, could see Singapore’s Grade A office rents softening by another 5-10 per cent in 2013.

On the sales front, Singapore’s office properties are expected to continue to attract strong interest from institutional funds and investors, amid a compelling low interest rate environment.  As Singapore’s office properties are considered relatively stable assets in the current volatile global investment markets, buyers are willing to accept lower initial yields, while holding out for future rental and capital appreciations.  

In light of these, capital values could bottom and gradually inch up by up to 5 per cent in 2013.”