Sunday, December 23, 2007

SOARING office rents

SOARING office rents have forced the Shenton Medical Group clinic out of its Republic Plaza location to a cheaper space at an older building nearby - The Arcade.

The company had been paying $5 plus per sq ft (psf) since 2002-2003 but was stunned with a demand for about $18 psf in the middle of the year, when lease renewal talks started.

Dr Lee Hong Huei, deputy president, Singapore operations division of ParkwayHealth, said the massive rise was a major factor in the firm’s decision to move.

‘We felt that it was a bit difficult to pass on the costs to our clients,’ he said.

It is becoming a familiar story around town with companies caught between a space crunch and relentless rent rises.

Parkway’s new clinic will open in January and take up a similar amount of space on part of The Arcade’s 18th floor and all of the 19th floor.

While The Arcade is in the prime Raffles Place area, it is not a new or top-grade building. Republic Plaza, on the other hand, is among the most coveted addresses in the area.

Asking rents at the City Developments-owned building have climbed to a whopping $19.80 psf amid the supply squeeze.

Monthly asking rents for prime office spaces in the Central Business District now average $16.30 psf, according to property consultancy Cushman & Wakefield.

This is up 4.5 per cent from last month and an eye-watering 285 per cent increase from the market bottom about three years ago.

Even in the shopping belt of Orchard and Scotts Roads, prime office rents have risen to $13.61 psf, up 8 per cent from last month and nearly 102 per cent from a year ago, said Cushman & Wakefield.

‘Almost all our facilities have experienced rents rising at 30 to 40 per cent on average, except for the 300 per cent jump at Republic Plaza,’ said Shenton’s Dr Lee.

‘Medicine costs have also gone up, so our margins are very thin.’

The increase in prime office rents this year has been rapid.

Last month, net rents for the top 25 grade A office buildings were at a record $16.02 psf a month on average from $15.54 in October.

To manage the supply squeeze, the Government has released transitional office sites for short-term lease and more office sites for sale.

But a new building on a sale site may not come in time to meet current demand.

The buildings on sites sold recently in Tanjong Pagar and Marina View are expected to come on stream only around late 2010 to 2011, said Cushman & Wakefield managing director Donald Han.

There are also concerns of an oversupply from 2010, when a large amount of space in the Marina Bay Financial Centre becomes available.

Nevertheless, space remains tight for now.

Next year, just about 1.35 million sq ft of space will come on stream, with less than half a million sq ft in prime areas such as VisionCrest in the Oxley area near Orchard Road, said Mr Han, but historical office demand is at two million sq ft a year.

‘The upswing in rents will continue next year, but the pace of acceleration will slow as we are already moving to a high base,’ he said.

There is also increasing resistance, as companies move to cheaper space in alternative or suburban locations.

Mr Han forecasts a rise of 20 per cent to 25 per cent in office rents for next year.

Source : Straits Times - 22 Dec 2007

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