Office rents in Singapore will be higher than those in Hong Kong by the end of next year as supply here remains tight, a property firm said in a study

Office rents in Singapore will be higher than those in Hong Kong by the end of next year as supply here remains tight, a property firm said in a study released yesterday.

And industry sources said the overall rise in prime office rents may be serious enough for the government to see if it is worth moving some public organisations out of prime space in the Central Business District (CBD) so it can be freed for the private sector.

The move would also ease the upward pressure on rents and help Singapore stay competitive, the sources added.

Office rents in Singapore have been climbing at a fast clip and are set to overtake those in Hong Kong in about 18 months, according to property firm Savills.

Simon Smith, Savills’ senior director for regional research and consultancy, expects the average rent in Singapore’s ‘core’ areas - Raffles Place, City Hall, the Marina area, Shenton Way, Robinson Road, Tanjong Pagar and Orchard - to hit US$7.89 in the fourth quarter of 2008, up from US$5.10 in Q1 this year.

Average rents in Hong Kong’s core locations, on the other hand, are expected to drop from US$6.61 in Q1 2007 to US$6.15 in Q4 2008. Savills defines Hong Kong’s core areas as its CBD, Wan Chai and Causeway Bay and Tsim Sha Tsui.

Office rents in Singapore’s non-core locations are also expected to be higher than those in non-core areas of Hong Kong.

Mr Smith said the supply of office space in Singapore is expected to be tight until at least 2009, whereas in Hong Kong about 4 million sq ft of space will come on stream next year.

‘Singapore will not have any more major new Grade A office space this year,’ he said. ‘And all the activity driving up the demand for space - such as IPOs, M&A activities and private wealth management activities - are expected to continue growing.’

Demand for office space became more broad-based in the first half of 2007 after having been dominated by the financial and banking sector in the early part of the year, says property firm CB Richard Ellis (CBRE).

This has also put pressure on rents, it says. ‘Tenants from the shipping, energy, oil-trading, law and IT sectors have been taking up office space in the core CBD area of Raffles Place, Marina Bay and Marina Centre. There are precious few office options for large occupiers over the next couple of years.

Market watchers say having higher office rents than Hong Kong could dent Singapore’s competitiveness when it comes to drawing international firms, but point out that the overall cost of doing business here is still likely to be cheaper than in Hong Kong.

‘When you consider overall costs, such as residential and transportation, Singapore is still cheaper than Hong Kong,’ said Mr Smith.

The government is also aware of the space crunch and is doing its best to ease the problem. Besides seeing whether some operations can be moved out of the CBD, in May, the authorities called a halt to all conversion of offices in the central area to curb depletion of existing stock.

‘The government policy reaction is now in full swing and we expect will pay dividends in redressing the supply-demand imbalance in the medium to long-term,’ said Moray Armstrong, executive director for office services at CBRE.

Source: The Business Times, 27 June 2007