Office rentals go through the roof

With a whopping 30.3 per cent rise in rentals for the whole of 2006, the office property sector last year came close to the pre-1996 highs when the property market was at its peak. Latest statistics from the Urban Redevelopment Authority (URA) show prices of office space soared 7.7 per cent quarter-on-quarter and 17 per cent year-on-year while rents rose 11.6 per cent quarter-on-quarter and 30.3 per cent year-on-year.

The latest URA statistics show that for office property owners there has never been a better time than now in the last 10 years, say experts.

“These levels of rental and price increases were unprecedented in the past decade,” said property consultancy CB Richard Ellis.

The URA figures coincide with CBRE’s estimates which show prime office rents rose 13.2 per cent in the fourth quarter to $7.81 per square foot (psf) per month and average prime capital value rose 11.1 per cent quarter-on-quarter to $1,500 psf in end-2006.

According to Knight Frank’s head of research & consultancy Mr Nicholas Mak, this is “the largest annual rental increase since 1996″. The increase is almost similar to the rental index increase of 31.3 per cent in 1995. Mr Mak believes office capital values will rise by 20 to 25 per cent over the next 24 months.

“The office market is almost like a mirror image of the residential market in that high-end rentals are going through the roof, driven by strong demand from banks, financial institutions and business services companies,” he said.

URA figures show island-wide occupancy improved from 87.2 per cent in the fourth quarter of 2005 to 89.7 per cent in the fourth quarter of 2006. This is noteworthy, said CBRE, as occupancy rose even as new supply of 848,000 sq ft of office space came in during this period.

According to the URA demand for offices island-wide came to a total of 2.4million square feet in 2006. This is higher than the 1.959 million sq ft for 2005 and even exceeds the pre-Asian Financial crisis average of 2 million sq ft.

And this demand is set to continue at a scorching pace, say experts. “There will continue to be a shortfall between supply and demand until the BFC is completed in 2010, said Mr Mak.

“If the above assumption is correct, there will be no ‘cooling effect’ from the completed office space. What we are going to see is a hotter and hotter office market.”

Knight Frank’s office highlights projects island-wide office occupancy rate to reach between 91 and 93 per cent, while occupancy for Grade A could reach between 95 and 99 per cent in 2007.

Source: Weekend Today, 27 January 2007

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