Occupancy cost of offices falls in Singapore

Source : Business Times - 19 Mar 2009

GRADE A office occupancy cost in Singapore dropped 22 per cent from an annual average gross rent of US$125.06 per sq ft in the first half of 2008 to US$97.07 psf in the second half.

But Singapore remained the third most expensive city in the Asia-Pacific, according to a report by Colliers International.

Occupancy cost is defined as the annual average gross rent of central business district (CBD) Grade A office space. Hong Kong and Tokyo retained their first and second spots, with respective average gross rents of US$177.86 psf and US$128.40 psf.

Worldwide, Singapore was ranked the sixth most expensive city, while Hong Kong was the most expensive.

Tay Huey Ying, director of research and advisory at Colliers, said: ‘Despite the fact that Singapore’s CBD Grade A office rents registered a 22 per cent decline in H2 2008, it has retained a high position in the regional and global ranking.

‘This is because office rents in almost all other cities have been similarly pressured down by the global financial crisis.’

Colliers’ report shows that nine of the major Asia-Pacific cities surveyed registered rental declines exceeding 20 per cent. Brisbane and Perth experienced the steepest declines of more than 28 per cent.

While Singapore remains expensive, Ms Tay believes cost competitiveness has improved slightly, particularly against other key financial cities like Hong Kong and Tokyo.

She noted that Singapore’s office occupancy cost is now 45 per cent cheaper than Hong Kong’s, widening from 41 per cent in June 2008. Compared with Tokyo, occupancy cost here is now 24 per cent cheaper, versus just 3 per cent in June 2008.

The Grade A office vacancy rate in Singapore rose 1.4 percentage points to 8.9 per cent in the second half on 2008. The 8.9 per cent figure is high compared with Hong Kong and Tokyo, both with 4 per cent.

Seoul had the lowest vacancy rate at 0.7 per cent, while Guangzhou had the highest vacancy rate at 23 per cent.

Ms Tay said: ‘The growing vacancy rate in Singapore is due to the interplay of dwindling demand and surging supply.’

Colliers says demand for office space here shrank for the first time in four-and- a-half years in December 2008.

New supply, on the other hand, was about 1.4 million sq ft in 2008 - the largest amount since 2002 and exceeding the cumulative net new supply of office space from 2003 to 2007 by almost 1 million sq ft.

Ms Tay said that in line with the economic contraction, demand for office space in Singapore is set to slide in 2009 and the vacancy rate is set to rise.

‘On the supply side, 2.9 million sq ft of office space is estimated to come on stream in 2009, on top of the bumper crop of net new completion amounting to 1.4 million sq ft seen in 2008,’ she said.

The situation will be aggravated by the supply of 2.5 million sq ft of new hi-spec industrial space due for completion in 2009, as well as a rise in shadow space.

Although close to 50 per cent of the new hi-spec space has been pre-committed, Ms Tay believes the remaining space is likely to compete with the office sector for tenants.

In addition, shadow supply is expected to grow in 2009 as companies downsize or relocate to cheaper premises prior to lease expiry.