Rental Decline for the Entire Year Forecast to be Capped at Less than Five Per Cent

International property consultant, Colliers International’s latest quarterly research report on the office property sector revealed that the office leasing market in the Central Business District (CBD) stayed relatively muted in 1Q 2013. 

In general, new office space take-up remained slow in 1Q 2013, with leasing deals secured for smaller space users of 20,000 sq ft and below.  Activities were dominated by office renewals, and to a smaller extent, flight to quality. 


Against the backdrop of a subdued leasing market, office rents in the CBD stayed on the downtrend in 1Q 2013. 

Following a 0.5 per cent decline in 4Q 2012, the average monthly gross rents for both Premium1 and Grade A2 office space in the CBD eased by another 0.7 per cent on a quarter-on-quarter (QoQ) basis to reach S$8.41 per sq ft as of March 2013.

Specifically, the average monthly gross rents for Premium Grade office space in the Raffles Place/New Downtown micro-market declined 1.4 per cent QoQ, and stood at S$9.41 per sq ft as of March 2013.  This is a 23.2 per cent slide from the peak of S$12.25 per sq ft recorded in 3Q 2011.  The decline was due to competition from new and upcoming office completions in the area. 

Meanwhile, the growing vacancy pressures from the existing and potential secondary office stock that will be relinquished in the next five years resulted in a 1.3 per cent QoQ decline in the average monthly gross rents for Grade A office space in the Shenton Way/Tanjong Pagar and Marina/City Hall micro-markets.

In contrast, rents in the city fringe and sub-urban micro-markets held firm for two and three successive quarters, respectively. This could be attributed to efforts by companies to explore more cost efficient office locations – resulting in a largely-resilient occupancy rate seen for completed stock, as well as healthy pre-commitment levels for projects under construction. Additionally, the improvement in the offerings of new office buildings outside the CBD facilitated tenants’ relocation decisions.   

Occupancy Rate

With some tenants taking flight to quality, the average occupancy rate for Grade A office space in the CBD dipped from 94.5 per cent in 4Q 2012 to 93.6 per cent in 1Q 2013.

Specifically, the average occupancy rate for Premium Grade office space increased from 88.5 per cent to 90.2 per cent across the same period.

Mr Marcus Loo (劳耀萳), Executive Director of Office Services at Colliers International, says, “Rents of Premium Grade office space continue to face downward pressure and have provided an opportunity for tenants to upgrade to newer premises with better specifications.  We are increasingly seeing more companies rationalising their usage of space; thereby, seeking buildings that offer an efficient floor plate layout.”

Capital Values

The office sales market started the year on a positive note – supported by the continued low interest rate environment, as well as investors’ search for alternative investment options after the property cooling measures were implemented in the residential and industrial sectors.  There are also end-users buying for own occupation.

For instance, SBF Centre, a new 99-year leasehold mixed-use commercial development located along Robinson Road, reportedly sold 113 of the 138 office units during its soft launch in February at prices starting from S$3,200 per sq ft. 

There was also keen interest in the en bloc sales market in 1Q 2013.  NTUC Income acquired the remaining 51 per cent interest at S$2,371 per sq ft from Goldman Sachs to take full ownership of 16 Collyer Quay, while Guthrie acquired 2HR, a seven-storey commercial building at 2 Havelock Road, for S$1,626 per sq ft (based on net lettable area). 

Underpinned by firm demand, the average capital values of Premium and Grade A office space in the Raffles Place/New Downtown micro-market continued to hold firm at S$2,640 and S$2,390 per sq ft, respectively, in 1Q 2013. 


Going forward, office rents may continue to soften in 2013 due to the challenging global economic environment which will impact leasing demand, coupled with supply pressures faced by the primary and secondary markets. 

The potential supply of new office space, between 2013 and 2017, remains at a daunting 9.3 million sq ft. The significant supply of new office space is expected to continue to draw tenants away from older buildings.  Hence, there remains the risk of slow absorption of secondary space that has been returned or will be returned in the next five years.  

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “While office rents are expected to continue to soften in the coming quarters, the decline for the entire year is expected to be capped at less than five per cent.” 

Although the market saw fewer leasing transactions in 1Q 2013, there was a noticeable increase in the number of Request for Proposals (RFPs) generated since the start of 2013.   This demonstrates that tenants are currently exploring different leasing options ahead of their lease expiry.

The RFPs were mainly from companies in the financial services, pharmaceuticals and information technology industries; and these could potentially translate to more office leasing deals being inked in the next 6-12 months. 

Meanwhile, pre-leasing negotiations for strategically-located new office buildings could also pick up pace in 2H 2013, as larger occupiers continue to be on the lookout for modern and efficient floor layouts offered by the new buildings to consolidate their office operations.

Over in the sales market, buying activities could continue to be shored up by continued income growth and limited investment options in Singapore. Despite falling office rents and compressing yields, Singapore still retains her popularity as a safe investment haven among international real estate investors.

“If the fall in office rents were contained, there is potential for office capital values to grow by 3-5 per cent in 2013,” concludes Ms Chia.


  1. The Premium Grade basket covers new office buildings with the highest quality specifications.  These developments are typically in the Raffles Place/New Downtown area.
  2. The Grade A basket comprises good quality office buildings with well sought-after specifications in strategic locations that are well-served by amenities and transportation nodes.