$13.60 psf is new benchmark for office rents
A new benchmark for office rents has been set with a $13.60 per sq foot (psf) rent at Republic Plaza, topping a recent high of $12 psf for One Raffles Quay.
According to a report by Savills Singapore, the average monthly rent of $7.70 psf has also exceeded the peak average rent of $7.64 in 2001, and is just 10 cents shy of the earlier peak of $7.80 psf in 1998.
Savills director Simon Hill also notes that unlike at the time of the previous peak periods, which were offset by new supply coming onstream within a couple of years, the current lack of supply will remain unabated for a much longer period. ‘Lead time now is three to four years, around 2010 and 2011, before there is new supply. We will also see a reduction in stock as Singapore is particularly popular at the moment,’ he said. ‘The boom will be more prolonged.’
As such, Mr Hill expects to see rents rise by another 5 per cent in the next three to six months, setting new benchmarks. Already, he says, new expectations have been set for rents by the owners of Republic Plaza who are now looking at leasing space there for $13.80-$14.80 psf. He does not doubt that rents at Republic Plaza could even hit $16-$17 psf by year-end.
Other Grade A office buildings seeing rents surge include 6 Battery Road and Singapore Land Tower, where asking rents are around $13 psf.In the City Hall area, Centennial Tower, Millenia Tower and Raffles City Tower are quoting as high as $11.50, $11.50 and $10 psf, respectively.
The lack of new supply is also exacerbated by tenants choosing not to give up their office space in spite of having found new premises. ‘When the market was soft, we believe a number of companies negotiated ceilings and first right of refusal with their landlords and are acting on it now,’ Mr Hill said.
Landlords are, in turn, responding to the office space crunch by exerting pressure on rents. Asked to lease office space for the owner of an office building here, Mr Hill said he was told to ‘hold the space if it does not achieve the asking rent’.
With the strong leasing momentum, vacancy rates have also fallen. In the Raffles Place area, the average vacancy rate of Grade A offices dropped to 2 per cent in Q4 2006 from 4 per cent in the previous quarter.
Grade A office vacancy rate in the City Hall area fell below one per cent, while in the Orchard Road area, prime office space vacancy dropped by 2.6 percentage points, from 4.6 per cent in Q3 2006 to 2 per cent in Q4 2006. In the Beach Road, River Valley and Shenton areas, average vacancy rates all stood at below 2 per cent.
Savills’ report also reveals that capital values of prime office space in the CBD rose significantly in 2006. At end-December, the average capital value of prime office space stood at $1,450 psf, 19.8 per cent higher year on year.
Source: The Business Times, 26 January 2007
