Office Rents and Capital Values Continue to Grow in 3Q 2014

International property consultant, Colliers International’s latest research report on the Singapore office property market revealed a new trend in the leasing market.  There has been an increasing number of tenants asking for longer lease terms of 5+5, 6+6 or 12 years, with built-in rental review terms.

Mr Marcus Loo (劳耀萳), Executive Director of Office Services at Colliers International, says, “We are seeing more requests from tenants negotiating for longer lease terms, as it provides them with more stability and allows them to spread their asset depreciation over a longer period of time. Such arrangements will help mitigate high occupancy costs and the capital expenditure incurred when they relocate to new office developments.

However, contrary to the common belief, longer lease terms do not generally equate to lower rents.  Landlords may factor in potential rental upside if they are tied to a longer period of time.  Hence, tenants who prefer a longer term will have to weigh the merits of an extended period vis-à-vis a higher rent.” 

In 3Q 2014, the office property market stayed on the growth path, with both rents and capital values charting higher grounds.


In 3Q 2014, rental growth of Premium Grade office space in the Raffles Place/New Downtown micro-market has surged by 6.1 per cent quarter-on-quarter (QoQ) to S$11.67 per sq ft per month – the highest quarterly growth in 3 years.

Rents of Grade A office space in the same micro-market registered a milder climb of 2.9 per cent QoQ to S$10.25 per sq ft per month.

Meanwhile, rents of Grade A office space in other micro-markets in the Central Business District (CBD) also grew by between 0.4 per cent and 2.9 per cent QoQ during the quarter, towards the psychological rental benchmark level of S$10 per sq ft per month.   

Generally, the first 9 months of 2014 saw the average monthly gross rents of Premium Grade office space in the Raffles Place/New Downtown micro-market escalate by some 13.3 per cent, while those of Grade A and B office spaces in the CBD gain 6.4 per cent and 3.9 per cent, respectively.

Mr Loo comments, “In fact, office rents have been on a consistent uptrend for the past one and a half years.  The tight office market has given landlords greater pricing power over tenants and we are seeing a growing divide between the type of spaces tenants desire in relation to affordability, and landlords’ rental expectations.  In 3Q 2014, the leasing market saw an increase in the number of viewings rather than lease commitments, as tenants are taking a longer time to work out their sums.”

The continued rental growth comes amid a supply squeeze – given that the average occupancy rates of most micro-markets have reached near-full occupancy rate of 95 per cent.

Occupancy Rate

In 3Q 2014, the overall average occupancy rate for completed Premium Grade and Grade A office space in the CBD held firm at 96.5 per cent.  This was relatively unchanged from that recorded in 2Q 2014, which was already the highest occupancy level recorded in six years.

Specifically, the average occupancy rate of Premium Grade office space in the Raffles Place/New Downtown micro-market climbed 0.7 percentage point to reach 94.1 per cent.  Those of Grade A office space in the Raffles Place/New Downtown and Shenton Way/Tanjong Pagar micro-markets stood at 97.1 per cent and 99.4 per cent, respectively. 

Majority of the space taken up during the quarter were located in upcoming office developments, such as CapitaGreen, DUO Tower and South Beach Tower, or secondary office space given up by existing tenants.”

Capital Values

On the sales front, the high transaction volume of strata-titled office units recorded in the last quarter was not sustainable in 3Q 2014.  This is due to the lack of major new strata-titled office project launches during the quarter, coupled with the occurrence of the month-long Hungry Ghost Festival, a period that the Chinese deems inauspicious to make large financial commitments.  

Nonetheless, the en bloc office investment sales market was bustling with activities:

  • Anson House in Tanjong Pagar changed hands at S$172 million, or S$2,252 per sq ft based on the net lettable area (NLA) of 76,362 sq ft.
  • Straits Trading Building along Battery Road was reportedly sold for S$450 million, or slightly higher than S$2,800 per sq ft based on the NLA of some 159,000 sq ft.
  • Level 20-22 of GB Building along Cecil Street was sold for about S$31.7 million, or S$1,973 per sq ft based on total saleable area of 16,060 sq ft. 
  • Six strata units totaling 13,132 sq ft on Level 18 of Samsung Hub at Church Street was sold for S$42.4 million, or S$3,225 per sq ft.

Consequently, notwithstanding the seasonal dip in sales volume for strata-titled office space, the new benchmark prices achieved for the office investment sales market helped push up the price points of office space across the market.

Specifically, in the Raffles Place/New Downtown micro-market, the average capital value of Premium Grade office space rose 1.2 per cent QoQ in 3Q 2014 to S$2,725 per sq ft, while that for Grade A office space inched up 0.8 per cent QoQ to S$2,440 per sq ft.

In general, the average capital values of Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market have strengthened by 2.2 per cent and 1.9 per cent, respectively.


Looking forward, office space take-up is expected to continue to stem from various industries – including technology and info-communications, pharmaceuticals, insurance, energy and commodities, among others.

Nonetheless, sentiment-sensitive industries, such as banking and finance, will still be seen to continue rationalising their use of space to control cost and boost margins, in light of the global economic environment – particularly since the imposition of financial regulations after the global financial crisis.

Supply-wise, with some 1.7 million sq ft of new supply coming on stream in 4Q 2014, occupancy levels during the quarter are expected to moderate. However, it is temporary, with a gradual rebound expected thereafter to until early 2016, on the back of the expected under-supply of new office space in 2015.

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “Having amassed a growth of 13.3 per cent in the first 9 months of 2014, rents of Premium Grade office space in the Raffles Place/New Downtown micro-market are expected to continue to increase and record a full-year ascent of close to 15 per cent for the entire 2014, while the growth in rents for the overall CBD Grade A and B office space could reach up to 10 per cent.”

She continues, “Price will have limited growth potential as compared to rents, as any uncalculated increase in capital values will result in a significant drop in transaction volume due to resistance from buyers.  The long-standing price gap between buyers and sellers remains largely in place, with buyers pricing in a potential rise in interest rates, while sellers pricing in a potential increase in rents.”

Consequently, although there is still some growth potential in capital values for Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market, their full-year growth in 2014 would be limited to about 5 per cent.