Office rents in 2021 could recover to 2019’s levels

Office rents to grow 5.5% by the end of 2021, on an eventual economic rebound and benign supply

  • CBD Grade A office rents declined 2.1% QOQ in Q4 2020 and 5.4%* for the full year to SGD9.57 per sq foot;
  • New office rents demand to be driven by the technology sector and overall recovery. The recent award of the digital banks’ licenses could support demand for office space;
  • Q4 2020 CBD Grade A vacancy of 5.2% to tighten over the next two years on muted supply;
  • A record year with total office or mixed office investment volumes growing more than ten times QOQ to SGD10.3 billion (USD7.8 billion) in Q4 2020, driven by CapitaLand Commercial Trust and CapitaLand Mall Trust’s merger;
  • Intact long-term capital value growth QOQ, at 3% p.a., in line with the long-term rental growth of 3.7%.

Report highlights:

  • CBD Grade A rents saw a decline of 2.1% quarter-on-quarter (QOQ) to S$9.57 psf, while vacancy rates rose to 5.2%.
  • New demand for office space will be supported by the technology sector and an overall business recovery. The recent award of digital bank licenses could also further support this demand.
  • Although transaction volumes of office investment fell 61% YOY, the long-term attractiveness of Singapore to investors continue to hold firm.

Despite the decline of CBD Grade A office rents, we forecast rents to grow 5.5% by the end of 2021, on an eventual economic rebound and benign supply.


Office rents to grow 5.5% by the end of 2021, on an eventual economic rebound and benign supply (image: Colliers International)

Colliers International has published its latest research report which examines the performance of the Singapore office property market in Q4 2020 and its prospects ahead.

Office Rents

Evaluating the data, Colliers International Research notes that CBD Grade A gross effective office rents continued to moderate further by 2.1% QOQ to SGD9.57 per square foot in Q4 2020 and represents a 5.4% decrease for the full year.

Ms Tricia Song, Head of Research for Singapore at Colliers International, added, “The prime office market has been relatively resilient considering we went through the deepest recession since independence. Going forward, market dynamics are conducive for a recovery towards end-2021. We forecast CBD Grade A rents to rise 5.5% to SGD10.09 (USD7.63) per sq ft.”

This recovery can be justified with the alignment of several factors. Firstly, Oxford Economics forecast a positive GDP growth of 5.6% for 2021. Secondly, new office demand will continue to be driven by the technology sector and the overall business recovery. Thirdly, supply levels are benign in 2021-2022 (average annual expansion at 2.6% of stock versus 4.7% for the last five years). Consequently, the expected positive net absorption should tighten vacancy before the next supply hike in 2023. Finally, redevelopment plans will further reduce the Central Business District’s (CBD) stock.

Ms Song added, “Among the Grade A micro-markets, Shenton Way/Tanjong Pagar has the highest potential for rising rents as it is best positioned to benefit from the CBD incentive schemes and undergo rejuvenation. The longer-term Greater Southern Waterfront development nearby could further uplift the precinct.”

Ms June Chua, Executive Director, Head of Tenant Representation, said: “2020 was a favourable year for occupiers, providing them with opportunities to renew leases at lower rents, while landlords are more willing to negotiate and offer higher incentives. There is still a short window of opportunities for Occupiers who want to lock in their leases before rents increase. Larger occupiers should continue rationalising their space requirements and alternatively adopt a flex-and-core or split-office strategy.”

Office rents and vacancy, Q4 2020

  Average Gross Effective Rents
(SGD psf pm)
QOQ Change (%) YOY Change (%) Vacancy (%)
Grade A (Premium Tier)        
Raffles Place / New Downtown 11.28 -3.0% -8.0% 3.2%
Grade A
Raffles Place / New Downtown 9.70 -2.9% -6.7%* 7.6%
Shenton Way / Tanjong Pagar 10.05 -1.1% -4.7%* 8.3%
City Hall 9,93 -1.5% -3.9% 3.7%
Beach Road / Bugis 8.75 -2.6% -6.7% 2.8%
Orchard Road 8.74 -2.4% -4.4%* 4.7%
CBD Grade A Average 9.57 -2.1% -5.4%* 5.2%
City Fringe 7.39 -1.8% -6.4% 4.5%
 Suburban 4.95 -0.4% -3.9%* 7.7%
Grade B
Raffles Place 8.22 -3.1% -7.0% 5.1%
Shenton Way / Tanjong Pagar 7.77 -2.4% -5.9% 7.4%
Beach Road / Bugis 7.55 -2.6% -5.8% 8.5%
Orchard Road 7.91 -3.1% -9.0% 18.0%
CBD Grade B Average 7.86 -2.4% -7.0% 8.4%
City Fringe 6.63 -0.1% -6.1% 6.4%
Suburban 4.54 0.0% 0.0% 16.7%
Source: Colliers International
Note: Average gross effective rents are benchmarked to a full-floor space in mid-zone level; conservative figure tending towards lower-end of rental range for a property. Effective rent refers to average rate payable over the lease term after accounting for incentives.
* On a like-for-like basis
Investment sales

Total office or mixed office investment volumes grew more than 10 times QOQ to SGD10.3 billion in Q4 2020, driven by the merger of CapitaLand Commercial Trust and CapitaLand Mall Trust. This brings the full year transaction sales volume to SGD13.2 billion, up 73% YOY.

Mr Jerome Wright, Senior Director, Capital Markets and Investment Services in Singapore at Colliers International, said, “While it was a record year for deals, transaction volume fell 61% YOY in 2020 when all REIT mergers in the year are excluded. Nonetheless, last year’s transactions highlight Singapore’s long-term attractiveness to foreign investors and appetite for rare freehold buildings. Over the next few years, we remain optimistic for capital market volumes on a favourable interest rate outlook and capital allocation to Asia’s key gateway cities.”

Notable Office Transactions

Property Price (SGD million) Price PSF NLA (SGD) Micro-Market Remaining Tenure
Capital Tower 1,412 1,922 Shenton Way /
Tanjong Pagar
74 years
Asia Square Tower 2 (office) 2,214 2,162 Raffles Place/New Downtown 86 years
Raffles City Tower (60% stake) 538 2,352 City Hall n.a
Six Battery Road 1,457 2,949 Raffles Place/New Downtown 804 years
One George Street (50% stake) 579 2,600 Raffles Place/New Downtown 81 years
CapitaSpring (45% stake) 687 2,358 Raffles Place/New Downtown 60 years
21 Collyer Quay 472 2,355 Raffles Place/New Downtown 829 years
CapitaGreen 1,667 2,378 Raffles Place/New Downtown 52 years
Keppel Bay Tower 657 1,700 City Fringe n.a
Source: Colliers International

The average imputed capital value of CBD Grade A office properties declined 1.3% QOQ to SGD2,436 psf, in line with the quarter’s rental declines. Meanwhile, Colliers’ valuation team maintained cap rates unchanged at a range between 3.15% and 3.50% in Q4 2020.

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