URA's New Office Data Draws Mixed Reaction

Source : The Business Times,July 28, 2007

IN an unprecedented move, the Urban Redevelopment Authority (URA) has created its own index involving a basket of about 22 prime office buildings it now calls Category 1 to track median rents for prime office space, and Category 2 representing everything else.























Category 1 represents 20 per cent of all office space, and it shows that median rents increased by 12 per cent to $9.50 psf based on lease commencement date and 13.9 per cent to $10.33 psf based on contract date between April and June.

Although property consultants that BT spoke to welcomed the new data, a variance in figures was noted. Most had reported that prime rents had increased by around 20 per cent in the second quarter of this year (quarter-on-quarter) with average prime rents ranging between $10.50 psf to $13 psf.

Explaining the difference, a spokesman for the authority said: 'URA only uses IRAS (Inland Revenue Authority of Singapore) records of all actual contracted rentals in the computation of the data, whereas, from what we know, some property consultants use estimates of achievable rents in addition to actual contracted rentals in the computation of statistics.'

Related link: http://www.ura.gov.sg/pr/text/2007/pr07-80.html

Click here for URA's release on Q207 real estate statistics


The URA did not name the buildings in Category 1 but said that these were 'largely consistent' with those selected by property consultants. For Category 2, median rents rose 5.9 per cent to $4.48 psf based on lease commencement and 8.8 per cent based on contract date respectively.

Colliers International director for research and consultancy Tay Huey Ying said: 'URA could probably improve on (the categories) further by spelling out the specific buildings to avoid ambiguity. In addition, Category 2 is a rather broad definition and information related to office space in this category may not be too meaningful to the general public.'

Ms Tay added that Colliers had more than 70 office buildings in its Grade A office basket while its data shows that prime office rents in Raffles Place increased 19.4 per cent to $12.69 psf in the second quarter. It also reported that prime rents in Hong Kong increased 5.8 per cent in the same quarter and were $10.25 psf. Giving an idea of what the Category 2 median rents might fetch, Nicholas Mak, Knight Frank's director of research and consultancy, said: '$4.50 could get you space in Tampines or Woodlands.'

There were other variances in data. CB Richard Ellis recently reported that the vacancy rate in the core and fringe CBD areas dropped to a new low of 2.7 per cent and 3.8 per cent while Grade A vacancy stood at 0.5 per cent.

The URA data show that vacancy fell to 5 per cent for Category 1 and 8.7 per cent for Category 2 in Q2.

CBRE's executive director for office services, Moray Armstrong, declined to comment on the figures but said the next two to three years could be 'difficult'. He added: 'This is a time to avoid sensationalism and take on a practical and sober view of what is happening in the market.'

The numbers are however difficult to ignore.

Chesterton International head of research and consultancy Colin Tan estimates that average absorption rate since 2005 to Q2 2007 has been about 565,000 sq ft per quarter or about 2.26 million sq ft per annum. Supply of 641,000 sq m from H2 2007 to 2010 however, translates to about 6.899 million sq ft or about 1.97 million sq ft per annum. 'This is not much because historically we have been able to easily absorb up to four million in good years,' he said.

'There are some consultants and media who are guilty of exaggeration, but you also shouldn't be giving people a false sense of security either.' Perhaps the best indication of market sentiment will come from those directly involved with leasing, and Cushman & Wakefield managing director Donald Han said: 'Some tenants will not consider leasing outside of Category 1 because it is a totally different proposition.'