Overall Tightening of Office Occupancy Results to Rents Increasing but Growth is Contained at Below 3.5 Per Cent

International property consultant, Colliers International’s latest quarterly research report revealed that the office property market in Singapore experienced a stronger demand in 2Q 2014, amid a positive business climate. 

As growth momentum in both the global and local economy gather pace, firms across most industries saw brighter prospects during the quarter.  Consequently, the office property market witnessed a new wave of leasing activities in both new and upcoming office developments – on the back of companies’ increasing expectations of business improvements, their ramped-up plans for growth and continued flight to quality.

Occupancy Rate 

By the end of June 2014, all Grade A office micro-markets across the island have reached near-full occupancy rate at beyond 95 per cent, with the highest rate of 99.4 per cent recorded for the Shenton Way/Tanjong Pagar micro-market.   

Mr Marcus Loo (劳耀萳), Executive Director of Office Services, says, “The last time the market achieved such similarly-high occupancy rates was in 1Q 2008, when the market was at its peak before the global financial crisis.  Back then, banks were primarily the ones that were progressively leasing space, as most of them were on an expansionary mode. Rents also shot up to levels not seen before, at as high as S$19.50 per sq ft per month for newer and higher-grade buildings. 

However, the situation today is somewhat different – with demand coming from a myriad of different industries, such as oil and gas, insurance, telecommunications, pharmaceuticals, among others. This is a much more balanced state, which has inevitably led the landlords to feel confident about the market and its outlook.” 

Specifically, interest in office space that is nearing completion gained traction in 2Q 2014. 

For instance, CapitaGreen, the only Grade A office development that will be completed in the Raffles Place/New Downtown micro-market by the end of 2014, has already achieved close to 12 per cent pre-commitment rate by end June. The landlord of South Beach Tower, which is also expected to be completed by 4Q 2014, is also reported to be in advance discussions to lease out another 20,000 sq ft of space.

Meanwhile, the occupancy rate of Premium Grade office space in the Raffles Place/New Downtown micro-market rose to 93.4 per cent in 2Q 2014 – the highest occupancy level achieved in four quarters. 

Mr Loo comments, “Demand for the existing Premium Grade office space in the Raffles Place/New Downtown micro-market stems from companies’ consolidation and relocation plans to quality office buildings. Interestingly, companies looking for space nowadays also take into consideration that young employees – whom they are aiming to attract and retain – prefer to work in more centralised and new state-of-the-art buildings.” 

For example, social media firm, LinkedIn, is reported to relocate from their current premises at AXA Tower and taking up two levels of office space at Marina Bay Financial Centre (MBFC) Tower 2 that was given up by Barclays.   Telecommunications firm, Vodafone, will also consolidate their operations at Asia Square Tower 2 from their current premises at Straits Trading Building and Suntec City. 

Outside the Central Business District, the office space market also saw several leasing activities in 2Q 2014.  In fact, the largest leasing deal during the quarter – and to date this year – was the 210,000 sq ft of office space at Novena Square, which will be vacated by Procter & Gamble and reportedly taken up by the CPF Board.  


The overall tightening of office occupancy islandwide gave landlords the mandate to raise their rent expectations across the market.  

Mr Loo says, “The strong demand from various industries and high occupancy rates have inevitably boosted landlords’ confidence in the market; and this is reflected by the higher transacted rents.  Notwithstanding, landlords should look at this improved demand with a cautionary approach, as companies continue to grapple with rising operational costs and higher rents have deterred some from relocating their offices.” 

Rental growth across the island in 2Q 2014 were contained at below 3.5 per cent.  

As of June 2014, the overall average monthly gross rents for Premium and Grade A office space in the CBD hit a 2.5-year high of S$9.10 per sq ft, an increase of 1.2 per cent quarter-on-quarter (QoQ).  

Specifically, the average monthly gross rents of Premium Grade office space in the Raffles Place/New Downtown micro-market also reached a 2.5-year high of S$11 per sq ft in 2Q 2014. 

Capital Values 

On the sales market front, strata-titled sales activities in 2Q 2014 picked up pace, following the increasing demand for space from end users and growing optimism of recovering office rents.  The sales volume in 2Q 2014 was beefed up by the continued sales of new strata-titled office units at Vision Exchange (Venture Avenue).  

Despite the high property prices and concerns over an impending interest rate hike, buyers who intend to occupy the premises for own use are still willing to offer record prices for strategically located office properties.  

For instance, the entire 14th floor of the freehold Samsung Hub along Church Street was reportedly sold to a mainland Chinese company in April for S$39.7 million, or S$3,030 per sq ft based on its strata-titled floor area.  This is the highest per sq ft price achieved for an entire floor of office space at Samsung Hub, surpassing the previous high of S$3,000 per sq ft achieved for a floor on the 16th level in 2012. 

Meanwhile, the en bloc office investment sales market was kept active during the quarter by family-run businesses looking for investment opportunities.  For instance, a consortium – comprising KOP Limited, Lian Beng Group, KSH Holdings and Centurion Global – acquired a 92.8 per cent stake in Prudential Tower for S$512 million, or S$2,316 per sq ft of net lettable area (NLA).  Another consortium led by GSH Corp has also entered into an agreement to acquire Equity Plaza for S$550 million or S$2,181 per sq ft of NLA. 

Supported by healthy momentum in the sales market, the average capital value of Premium Grade office space in the Raffles Place/New Downtown micro-market rose 0.9 per cent QoQ in 2Q 2014 to S$2,692 per sq ft, while that for Grade A office space inched up 0.8 per cent QoQ to S$2,420 per sq ft.  


The office property market is expected to continue to strengthen for the rest of 2014.  The restoration of business confidence is expected to gather pace, on the back of the brightening outlook for the global economy.  This will likely pave the way for more firms to embark on expansion plans.  Additionally, as more companies set foot or expand their operations in Singapore to ride on the global economic recovery wave, office occupancy rate in Singapore will tighten further. 

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “The limited pipeline of new office space until 2016 will continue to favour existing landlords.  They are expected to gain more bargaining power over tenants, who will be competing with one another for the limited available options. This could support growth in rental rates, especially for Premium Grade and Grade A office space in the CBD.”  

However, lingering uncertainties of the global economy, coupled with the continued cost-cautious stance adopted by companies, could hold some firms back from relocating or expanding in Singapore.  This is especially so if rents accelerate at an unsustainable pace.  

Ms Chia continues, “For 2H 2014, rents for Premium Grade office space in the Raffles Place/New Downtown micro-market are expected to continue increasing at a steady pace at close to 7 per cent.  

Meanwhile, tenants’ relocation and flight to quality could eventually affect the occupancy levels in some micro-markets, especially those of Grade B office space.  This may limit the rental growth of some Grade A and B office properties to some 10 per cent for the year.”  

On the investment sales market front, improving office rents and increasing yields could bring more foreign funds back to Singapore’s office property market.  Recovering sales momentum in the strata-titled sales market could push prices higher for the rest of the year.  

Ms Chia concludes, “There is potential for the growth in capital values for Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market to accelerate from almost 1 per cent in 1H 2014 to up to 5 per cent for the entire year.”