Office rentals in 4 prime areas reach record highs

An acute supply crunch has sent office rentals in four central Singapore areas to record highs - surpassing even 1996’s lofty peaks, a survey from Colliers International has found.

At Raffles Place, the average monthly gross rent of top quality, or Grade A, space continued to grow, rising 23.5 per cent in the first quarter of the year to reach $10.63 per sq ft (psf). This tops the 1996 high of $9.77 psf in the area, which holds the Singapore record for high office rents.

Already, prime buildings such as Republic Plaza, Singapore Land Tower and 6 Battery Road are apparently asking for $14 psf to as much as $15 psf for advance bookings, market sources said.

The asking rent at Republic Plaza was just about $13 psf earlier this year, after a deal there was sealed at about $12.50 psf last December.

While the average monthly gross rent in Grade B buildings at Raffles Place has also risen, they are still below the 1996 peak.

In the Shenton Way/Tanjong Pagar area, however, rents of both Grade A and Grade B buildings have risen above 1996 levels, said Colliers.

A similar surge has been posted by the rents of Grade A buildings such as Millenia Tower in the Marina/City Hall area and Ngee Ann City in the Orchard area.

Rents in other areas such as Beach Road, Tampines regional centre and HarbourFront have also risen but remain well below the 1996 peak.

Occupancy levels of Grade A and B office space islandwide in the first quarter are now averaging a near capacity 96.4 per cent, said Colliers’ director for research and consultancy, Ms Tay Huey Ying.

‘This has given rise to the sweltering pace at which office rents are being revised, as landlords are seen to be raising their asking rents almost on a weekly basis.’

With office supply expected to remain extremely tight in the next two years, tenants’ choices will be limited, she said.

‘A solution, which some companies have already adopted, is streamlining operations and moving back-room operations to out-of-town locations.’

Companies can also consider leasing shophouses or using old government premises offered by the Singapore Land Authority, Ms Tay said.

Already, demand is spilling over into the industrial market, where buildings that are sometimes used as offices - though they are not designed for that purpose - are seeing strong demand, market watchers said.

Last week, Cushman & Wakefield said Singapore’s gross rents for prime industrial space rose about 20 per cent last year to around $1.25 psf per month on average.

Industrial buildings that are used as offices are fetching higher rents, some around $2 psf, market watchers said.

Looking ahead, office rents of Grade A office space in Raffles Place are expected to rise by at least another 30 per cent over the next three quarters, said Ms Tay.

However, she cautioned that a continued rent hike could erode Singapore’s competitiveness.

‘While not widespread, an increasing number of firms are already known to be considering relocating their non-core operations out of Singapore.’

Source: The Straits Times, 24 March 2007