Rise in office rents to slow this year

Office rents in Singapore are likely to rise at a slower pace this year, even as supply, especially in prime areas, remains tight.

Robust demand for grade A office space by financial institutions and other companies will still contribute to overall rental growth, but it would not match the upward spiral seen last year, said property consultants.

“A variety of factors indicate a slower pace of rental growth. These include companies’ willingness to move outside prime areas, a few signs of rising caution due to external issues in the United States and the growing realisation by occupiers that the market will be more friendly beyond 2010,” said CBRE’s Moray Armstrong, executive director of office services.

“Office rental growth is reaching a point of inflection, not a turning point,” according to Mr Steve Smith, deputy managing director at property consultancy Savills. He expected prime office rentals to grow 15 to 20 per cent this year, after rising 90 per cent last year.

While the top-end office rents in Singapore still remain lower than Hong Kong’s, “the average Grade A office rents in Singapore could possibly exceed Hong Kong’s by the second quarter this year because Hong Kong has a bigger supply coming through this year, about 3 million sq ft,” Mr Smith added.

The supply crunch in grade A office space prompted the Government to put forth plans during Budget 2008 last week to make available more space in the central area. Finance Minister Tharman Shanmugaratnam said the Government planned to relocate some agencies out of the central area to free up 20,000 sq metres of office space by early next year. It has also released 15 transitional office sites that will add 150,000 sq metres of office space in the near term.

According to the Urban Redevelopment Authority (URA), office rentals islandwide rose 56.1 per cent last year. In the last quarter, competition for the pockets of vacant space in the central business district remained intense and prime office rents averaged $15 psf per month, said CBRE. By the end of the year, prime rents could average $17 per square foot per month, it added.

Source : Today – 22 Feb 2008

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