Rentals of prime office space in Singapore shot up by as much as 91 percent in 2007, according to estimates.
While such gigantic leaps are not expected next year, property consultants said the days of cheaper rents are over. They see office rentals continuing on the uptick next year, albeit at a slower rate of around 10-15 percent.
Players in the realm of office space and rentals could hardly catch a breather this year as prices hit stratospheric highs.
"We had a year of extremely fast escalation of office rents. Year-on-year rents rose just over 80 percent, which is a very fast pace of growth. In fact, according to our statistics, this is the fastest pace of growth in any major city globally," said Moray Armstrong, Executive Director, Office Services, CB Richard Ellis.
Analysts said such prices have put pressure on businesses to be creative in containing costs, such as moving backroom operations outside the city where rents are cheaper.
But these high prices are less of a problem than the severe lack of office space, which could deter business expansion despite Singapore's encouraging economic outlook.
"Overall, the situation in prime CBD (Central Business District) area is we're expecting rents to continue moving upwards, in view that over the next 12-24 months, there won't be much supply going into the equation," said Donald Han, MD of Cushman & Wakefield.
Armstrong agreed: "Businesses will have to brace themselves for further increases in rent. But we do believe that the pace will moderate... perhaps rental increases in the order of 10-15 percent versus the 80 percent year-on-year increase that we've just come through."
To plug the supply gap, the government is releasing transitional office sites into the market, allowing some 410,000 square metres of commercial space to go on sale in first half of next year.
The office space crunch is expected to improve when developments like the Marina Bay Financial Centre are complete.
Citigroup is even predicting a supply glut in the long run, but the Urban Redevelopment Authority (URA) and some other market watchers disagree.
Said Choy Chan Pong, Director of Land Administration Division at URA: "Citigroup's projection is premised on the assumption that future demand will be similar to historical demand. Over the last three years, with good economic growth ranging from GDP growth of 6.5 to 8 percent, we have been seeing demand for office space, on an annual basis, of between 250,000 to almost 300,000 square metres per year.
"So, if we continue to see the kind of economic growth, then the demand for office space will be similar to what we've been seeing in the last three years. In this case, the chances of an oversupply will be unlikely."
Colin Tan, Director of Research & Consultancy at Chesterton International said: "They might have underestimated annual demand. There may be certain moments, going forward, such as the sub-prime (crisis) where there'll be an oversupply, but I don't think a glut is the correct word to use."
Overall, industry players agree with the government that plans and projects for office space that are underway right now will lead to an equilibrium in the long term. - CNA /ls
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