Signs of a Two-tier Office Rental Market Ahead with Occupancy Levels Likely to Peak

The Singapore office property market began the year on a fairly positive note – on the back of sustained steady absorption of office space that is underpinned by the city’s strengthening profile as a commercial hub.

Information technology companies were active in their search for office space in the Central Business District (CBD) during the first quarter, and financial institutions and insurance firms were seen strategically considering their space options with either consolidation for greater spatial efficiency and/or expansions into buildings with better specifications.

Meanwhile, companies that do not meet the regulatory requirements to occupy light industrial space were also observed to be making inquiries on available office space.  Other office occupiers that were on the move included tenants from older buildings that have been slated for re-development, such as the former KeyPoint.

Occupancy Rates

In 1Q 2015, the average occupancy rate for Premium Grade office space in the Raffles Place/New Downtown micro-market increased by 3.6 percentage points quarter-on-quarter (QoQ) to 91.8 per cent.

However, the average occupancy rates in most Grade A micro-markets registered slight downward adjustments during the quarter. The average occupancy rate for Grade A office space in the Raffles Place/New Downtown eased by a slight 0.2-percentage point in 1Q 2015 to 98 per cent.

Mr Calvin Yeo (杨光伟), Deputy Managing Director of Colliers International says, “The completion of CapitaGreen in 4Q 2014 and South Beach in 1Q 2015 has injected a sizable combined net floor area of more than 1.2 million sq ft in the CBD office market, resulting in a series of relocations.

CapitaGreen in the Raffles Place/New Downtown micro-market, for instance, has achieved an occupancy rate of above 70 per cent.”

Tenants secured at CapitaGreen during the quarter included ACE Insurance, Apple, BHP Billiton, Lloyd’s Asia, Schroder and Twitter, among others.


After growing some 15.8 per cent for the whole of 2014, the average monthly gross rents for Premium Grade office space in the Raffles Place/New Downtown micro-market remained unchanged QoQ in 1Q 2015 at S$11.93 per sq ft.

Meanwhile, rents of Grade A and B office space in the same micro-market played catch up during the quarter by increasing 1.6 per cent to S$10.41 and 1 per cent at S$8.74, respectively.

Capital Values

On the strata-titled office sales front, with limited new launches and the traditional festive lull period at the start of the year, transactions volume in 1Q 2015 has been kept subdued.  Only 31 caveats were recorded for strata-titled office units in the first 11 weeks of the quarter. This was 62.2 per cent lower than the 82 caveats lodged in 4Q 2014 and 71 per cent lower than 107 caveats recorded in 1Q 2014. 

Nonetheless, steady demand and improving rents in the office leasing market have contributed to the growing interest of institutional players, opportunistic private-equity investors, wealthy individuals and family offices; which in turn, provided support for prices. 

The first major office deal in 2015 was the sale of AXA Tower for S$1.17 billion, reflecting approximately S$1,736 per sq ft based on the existing net lettable area (NLA) of about 674,000 sq ft.

The strengthening office rents have also contributed to improved valuation of office assets held by public-listed Real Estate Investment Trusts (REITs), as well as private office assets.

Consequently, the average capital value of Premium Grade office space in the Raffles Place/New Downtown micro-market rose by 1.5 per cent from S$2,779 per sq ft in 4Q 2014 to S$2,821 per sq ft in 1Q 2015.  Grade A office space in the same micro-market moderately increased by 1.7 per cent QoQ to S$2,532 per sq ft by March 2015.


Looking into the rest of the year, the office property market in Singapore is expected to remain resilient, with net absorption being supported by a steady stream of leasing activities. 

Mr Yeo comments, “As occupiers move into newly-completed office buildings, demand for office space in existing developments in the CBD is likely to be supported by a flight to quality effect where office occupiers take the opportunity to upgrade from older buildings.  

Consequently, landlords of older buildings might have to offer better incentives or more competitive rents upon renewal to retain tenants.  The combination of these dynamics might signal symptoms of a two-tier rental market ahead.”

Meanwhile, companies that meet the qualifying criteria for business park space are likely to be lured by the more economical space options available at business parks in Singapore. 

Due to the lack of significant new office completions during the year, occupancy levels, in general, are likely to peak in 2015.  Nonetheless, rents may still be reined in due to pre-leasing activities from sizable projects expected to be completed in 2016. 

They include DUO Tower along Rochor Road (estimated NLA of 570,000 sq ft); Marina One at Straits View (estimated NLA of 1.9 million sq ft); and Guoco Tower at Peck Seah Street (estimated NLA of 850,000 sq ft). 

Nevertheless, the average monthly gross rents for Premium Grade office space in the Raffles Place/New Downtown micro-market is expected to increase by about 5-10 per cent, while those of Grade A and B office space in the CBD could rise by up to 5 per cent for the entire year.

Transactional activities are likely to increase in the next nine months, with the recent launches of strata-titled office units from Crown at Robinson (the former Chow House) and GSH Plaza (the former Equity Plaza), as well as the expected launch of Woods Square.

Due to supply-led demand, capital values for Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market could increase by up to 5 per cent.