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SINGAPORE (Nikkei Markets) -- Office space is the bright spot in an uncertain Singapore property market as healthy demand combines with the limited supply expected over the next two years to lift the outlook for rents and capital values.

Reflecting the optimism, German insurer Allianz paid above valuation for its first-ever investment in an office property in Singapore. Late last week, Allianz bought a 20% stake in Ocean Financial Centre in the heart of the financial district for 537.3 million Singapore dollars ($392 million). The seller was Keppel REIT, which is managed by the property arm of Keppel Corp.

Stuart Crow, head of capital markets for Asia Pacific at JLL, said the transaction was indicative of global investors' confidence in Singapore's office market as well as the continued trend of global investors teaming with local players to take stakes in prime assets across the region.

Krishna Guha, an equity analyst with Jeffries Singapore, expects office rents to increase by a mid-single digit next year and again in 2020 due to economic growth and diminished supply as older buildings are taken out of stock.

The positive outlook for office space contrasts with the somber mood in other segments of the city-state's property market.

In the retail area, landlords have seen vacancies rise as online retailers continue to gain market share at the expense of brick and mortar players.

Real estate consultancy Savills said that while Singapore is benefitting from increased tourism numbers and higher retail sales, long-established brands like Gap and Banana Republic have exited the city-state. Hypermarket chain Giant, which is part of the Dairy Farm group, is in the process of closing some outlets, while U.K. coffee chain Costa Coffee has shut all its outlets in Singapore.

As for the residential sector, transaction volumes have fallen sharply since the government introduced new cooling measures in early July while prices may also have begun to dip. According to an index developed by the National University of Singapore, prices of completed private apartments and condominiums fell by 0.6% on-month in October following a 0.2% decline in September.

According to JLL, rents for prime offices in Singapore have climbed 18% over six consecutive quarters to September 2018. The consultancy estimates that office supply in the central business district will start to grow only from 2020 onwards when two new buildings are slated for completion.

Singapore serves as a base for thousands of companies that do business in Asia, including big names like Google, Facebook and Citi. According to the Singapore Economic Development Board, an estimated 37,400 international companies have their regional headquarters in the city state.

Separately, the Urban Land Institute and PwC described Singapore as the second best real-estate investment market in the Asia Pacific after Melbourne, citing the strong increase in office rents due to a lack of supply and a revival in demand.

Co-working and other flexible office space operators have become some of the biggest lessors of office space, while tech firms have also been active in the market, the Urban Land Institute and PwC added.

Recent additions to Singapore's central business district include an innovation centre by co-working operator WeWork and a "digital factory" by French technology and aerospace company Thales.

Singapore's biggest office landlords include CapitaLand Commercial Trust, a real estate investment trust managed by CapitaLand, local giant City Developments and UOL Group, and Australia's Lend Lease.

--Kevin Lim