Leasing activity in the office sector remains strong, as the economy improves. Analysts said that this has cut the amount of the so-called "shadow space" or vacant office space not on the market.
In H1 2009, shadow space was 550,000 square feet, and now, it is just one-tenth of it.
In the meantime, demand for new office space like the Marina Bay Financial Centre (MBFC) has eased concerns of an excess supply.
The MBFC is seeing a strong take up rate from financial services firms and multi-national corporations, and its Tower One and Tower Two are now fully taken.
Tharman Shanmugaratnam, Singapore’s Finance Minister, said: "Asian finance is back to growth and Singapore is seeing an enhanced role as a gateway to the region and a centre for risk management. The Marina Bay area will be a significant part of this story."
The MBFC has nearly three million square feet of prime Grade A office space, and DBS Bank will be joining other large companies when it occupies more than half of the office space at the MBFC Tower Three.
The 1.3 million-square-foot office centre is expected to be completed in 2012.
Wilson Kwong, CEO of Raffles Quay Asset Management, said: “DBS has taken up 700,000 square feet making it 55 per cent to be committed at the moment right now.”
“We are talking to a number of prospects who are interested in taking up some space in Tower 3 although TOP for the tower is expected to be some two years away,” he added.
Mr. Kwong also said that tenants in Tower One are making arrangements to move in by July.
With more office space coming on the scene, many analysts expect companies to choose a better location for their facilities.
"We expect this year’s demand to hit quite close to 1.7-1.8 million square feet in terms of positive demand. Out of that 2.6 million square feet of new supply coming up on stream this year, almost 50 to 55 per cent have already been pre-committed," said Donald Han, managing director of Cushman & Wakefield.
Despite the rapid recovery of demand in the office sector, several market watchers said landlords are more likely to hold firm on rental. They expect office rental rates to remain flat for the entire year and to bottom out in Q4.
Average monthly rents for Grade A office space at Raffles Place dropped 2.9 percent on-quarter to S$7.52 psf in the first quarter, while office space in the Suntec-Marina area cost around S$6.67 psf a month, down by one percent on-quarter.
Monthly rentals at the Marina Bay area range from S$7 psf to S$8 psf, depending on the size.