Office rents in five micro-markets in the first quarter of this year surpassed their 1996 highs, says Colliers International. And if they continue to rise, Singapore’s competitiveness could be eroded.
‘While not widespread, an increasing number of firms are already known to be considering relocating their non-core operations out of Singapore,’ Colliers director for research and consultancy Tay Huey Ying said yesterday.
She declined to name them but said they include companies in business and services such as accounting and law. ‘The big international banks and financial institutions are still resilient to rising rents because they still see bright business prospects in Singapore.’
According to Colliers, gross monthly average Grade A office rent in Raffles Place jumped 23.5 per cent from end-2006 to $10.63 per square foot (psf) in Q1 this year. And the firm expects a further increase of ‘at least another 30 per cent over the next three quarters’.
The figure of $10.63 psf exceeds the 1996 high of $9.77 psf by 8.8 per cent. However, gross monthly rent for Grade A office space in Marina/City Hall have risen even more - to $9.72 psf as of March 2007, or 14.4 per cent above their $8.50 level in 1996.
The other office micro-markets in which rents have surpassed their 1996 highs are for Grade A office space on Orchard Road and Grades A and B space in Shenton Way/Tanjong Pagar.
Office supply is extremely tight, Ms Tay said. Islandwide, Grade A and B occupancy averaged 96.4 per cent in Q1, up from 95.6 per cent in the preceding quarter and 91.8 per cent in Q1 2006. ‘This has given rise to the sweltering pace at which office rents are being revised, as landlords are seen raising their asking rents almost on a weekly basis,’ she said.
Colliers has also noticed a narrowing of gap between asking prices and rents at which deals are signed, reflecting the strength and negotiating power of landlords. ‘This is most prominent in the Grade A Orchard micro-market, where the gap has narrowed from 36 per cent in Q1 2004 to a mere 3 per cent this quarter,’ Ms Tay said.
Supply is expected to remain extremely tight because of limited new stock in the next two years, she said. ‘This will limit tenants’ choice and they will need to look at other alternatives to meet their requirements. A solution, which some companies have already adopted, is streamlining operations and moving back-room operations to out-of-town locations. However, the supply in these locations is also fast declining.
‘The other option is for companies to consider leasing shophouses or utilise those old government premises offered by the Singapore Land Authority.’
Source: The Business Times, 24 March 2007
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