Colliers International, Singapore

On the back of a six-year high absorption rate estimated at 2.9 million sq ft this year, the Singapore office sector saw significant growth in rental rates across most key micro-markets in the fourth quarter of 2006.

The quarter saw all micro-markets registering the largest increase in their rental rates (ranging from 17% to 37.6%), with the exception of Grade B office space in Orchard Road and Grade A office space in regional locations, since the market bottomed out in 1Q 2004. This phenomenon could be attributed to an acute shortage amidst a high demand for good quality office space.

Average monthly gross rent of Grade A office space in Raffles Place soared by 66.5% from S$5.17 per sq ft in Year 2005 to S$8.61 per sq ft this year. On a quarter-on-quarter comparison, it has surged by an unprecedented rate of 24.4% from last quarter’s S$6.92 per sq ft. The current rate has surpassed the last peak of S$7.77 per sq ft achieved in 1Q 2001 by 10.8%. 

Ms Tay Huey Ying, Director for Research and Consultancy at Colliers International, says, “If this sweltering pace continues, we expect average monthly gross rent of Grade A office space in Raffles Place to breach 1996’s all time high of S$9.77 per sq ft by the first half of 2007, and to reach S$12 per sq ft by end of the year, representing an annual growth rate of close to 40%.”

Rental rates of Grade B office space in regional locations, such as Tampines, recorded the largest quarterly hike at 37.6%. This could be attributed to the spillover of demand from Grade A office buildings in the regional micro-market, which has an average occupancy rate of 99.1% as of December 2006.

“Rental levels across the various key micro-markets for the year will conclude at some 33% to 69.5% higher than previous year. Prime rents are likely to face immense upward pressure given the limited supply of Grade A office buildings scheduled for completion in Year 2007,” says Ms Tay.

“If rents continue to rise unabated amidst shortage of good quality office space, Singapore’s drive to be an international financial centre may be undermined and our competitiveness could erode to some extent, as the lack of quality office space will limit current companies’ expansion plans and potentially drive away prospective new entrants into Singapore,” comments Ms Tay.

It is of paramount importance that the relevant authorities look into ways to alleviate the short term shortage of good quality office space. Due to the time lag required for construction, releasing land via the Government Land Sales Programme will not be a viable option in overcoming the short term supply crunch. The leasing of vacant State properties, which are suitable for interim office use by the private sector, is only practical in meeting demand to a small degree and will only cater to business operations that do not need to locate in the Central Business District (CBD). 

“One feasible option is for the various Government departments, particularly those located in the CBD, to rationalize their office space usage and streamline their operations wherever possible; thereby, releasing the much needed office space for the private sector. This will certainly help to relieve the current tight office supply situation,” adds Ms Tay. 

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 9,327 employees span the world in 241 offices in 54 countries. On a worldwide basis, Colliers manages 595,725,580 square feet, and has revenue of $US 1,442,478,223. For more information about Colliers International, visit our website at www.colliers.com.

Contact Information

Ms Seah Li Ching
Senior Executive, Marketing & Communications
Colliers International
Tel         65 6531 8545
Fax        65 6438 2155

For more information, please contact:

Ms Tay Huey Ying
Director, Research and Consultancy
Colliers International
Tel         65 6531 8658
Fax        65 6557 0641

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