The average monthly gross rent of Premium and Grade A office space in the Central Business District (CBD) climbed 2.2 per cent from the third quarter to reach $8.72 per sq ft at the end of December, the highest level in two years.
As a result, average monthly gross rents for Premium and Grade A office space in the CBD grew 2.9 per cent in 2013, a healthy turnaround after having contracted 6.9 per cent in 2012.
"The firming of demand resulted in a tighter leasing environment, which in turn enabled landlords to continue to revise their rental expectations upwards," noted Colliers' executive director of office services, Mr Marcus Loo.
"While most companies remain generally cautious on the outlook, there is an undertone of returned confidence amid strong occupancy levels across all micro-markets."
The micro-market of Raffles Place and the New Downtown, which includes Marina Bay, was particularly robust, with average monthly gross rents of Premium Grade office space in the area rising 3.8 per cent in the fourth quarter from the previous three months to $10.30 per sq ft.
The average occupancy rates for Premium Grade office space in the area also nudged up from 87 per cent in the third quarter to 87.5 per cent in the final quarter.
Overall, the average occupancy rate for Premium and Grade A office space in the CBD inched up by 0.4 percentage point from the third quarter to 93.9 per cent at the end of December.
The upturn in office rents lifted property yields and, in turn, provided landlords with more bargaining power to negotiate for a higher selling price, Colliers said.
The average capital value of Premium and Grade A office space in Raffles Place rose 1 per cent from the third to the fourth quarter to reach $2,667 per sq ft, while in the New Downtown, average capital value rose 0.2 per cent to $2,395 per sq ft.
This is the first time since the fourth quarter of 2011 that the average capital values of Premium and Grade A office space in these areas have recorded positive growth.
Colliers believes the office market will stay strong in 2014 as demand for space will be fuelled by more business activity.
"There is potential for rents to grow another 10 to 15 per cent in 2014," said Ms Chia Siew Chuin, Colliers' director of research and advisory.
Though there is a high stock of 230,000 sq ft of sub-lease space, Ms Chia said this is unlikely to be a dampener on the leasing market.
"This is because it arose largely as the result of space rationalisation from a myriad of industries, rather than the scaling down or cessation of businesses that are characteristics of a bear market. Improvement in business sentiments should ensure a steady absorption rate."