S'pore Is World's Seventh Most Expensive Office Market

Source : The Straits Times, Feb 14, 2008

It jumps 10 spots in global ranking of occupancy costs by property consultancy

SINGAPORE has moved into the global top 10 most expensive office markets for the first time due to a severe office shortage.

A survey of office costs in 203 locations in 58 countries by global real estate consultancy Cushman & Wakefield saw the Republic jump 10 places to seventh spot.

This came after prime rents shot up by 78 per cent, on average, due to the tight supply.

The consultancy found that occupancy costs in Singapore - which include rents and other costs of running an office - hit an annual average of about US$130 per sq ft (psf).

Office rents, the largest component of occupancy costs, rose 40 per cent on average in the world's top 10 office locations, it said.

Office rental rises in Singapore were also led by strong demand from the banking and services sectors, said Cushman & Wakefield's annual Office Space Across The World report.

Worldwide, rents climbed by 14 per cent on average, compared with 10 per cent in 2006, it said.

London's West End - where rents rose 30 per cent last year - remains the most expensive office location in the world, followed by Hong Kong, then Tokyo. Mumbai, Moscow and Paris were next on the ranking.

Another fast-rising Asian centre, Ho Chi Minh City, is now at 17th spot, with occupancy costs at US$75.81 psf a year, ahead of Sydney, Seoul and Shanghai.

The strong performances in India and Vietnam helped the Asia-Pacific region to achieve the strongest regional growth, with rents up 23 per cent over the course of last year.

Of the 203 locations Cushman & Wakefield surveyed last year, 79 per cent showed rental growth.

Singapore registered the fifth-highest increase in office rents in the world. Istanbul's Levent district registered a 95 per cent rise in office rents, which was the highest annual growth in all locations.

'Last year saw the fastest level of growth in office occupancy costs in many of the world's top locations since the turn of the property cycle in 2001, with the strongest demand coming from the financial sector,' said the firm's head of business space research and consultancy, Ms Elaine Rossall.

'We are unlikely to know the full effects of the current credit squeeze on the world's main office locations until further into 2008.'

But last year's strong rental growth is expected to ease this year, she said.

In Singapore, the United States sub-prime crisis has affected the expansion plans of some firms.

Last year, up to nine out of 10 companies had expansion plans. 'But now, we could perhaps see five out of 10 companies looking to expand,' said Mr Donald Han, Singapore managing director of Cushman & Wakefield.

'We are still seeing new firms being set up, and these firms in the financial services sector must have a Raffles Place address.'

Office rental increases will be more moderate this year and next year, he added.

Instead of a 78 per cent rise in occupancy costs to US$130.48 psf a year - or about $15.44 psf a month on average - a 20 per cent increase is likely this year, he said.

But recent rental deals done at coveted buildings in Singapore, such as Republic Plaza and Millenia Tower, have already surpassed average levels.

For instance, the asking rents at Centennial Tower are now hovering at around $18.50 psf or more.

In Raffles Place, the asking rents for some prime Grade A office space have crossed the $20 psf mark.

Some tenants have complained that their office rents rose by as much as three times or even more when their leases came up for renewal.

The majority of Raffles Place office buildings are operating at 98 per cent to 99 per cent occupancy, so rents will not come down before a major chunk of supply comes onstream in 2010, said Mr Han.

That is when phase 1 of the huge Marina Bay Financial Centre will be ready.

Because of the steep increases, some bigger space occupiers are moving their non-frontline operations to suburban locations.

Some are reconfiguring their work space to make better use of it, property consultants said.

Others are looking to relocate to fringe areas or industrial locations.

These include the Beach Road corridor, conservation shophouses, business parks and transitional sites, where rentals are generally going at single digits - which is hard to find in Raffles Place.