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Thread: Office rentals rise, cutting down options for occupiers

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    Default Office rentals rise, cutting down options for occupiers

    http://www.businesstimes.com.sg/sub/...07189,00.html?

    Published October 6, 2010

    Office rentals rise, cutting down options for occupiers

    By KALPANA RASHIWALA


    (SINGAPORE) Office rentals have climbed steadily this year, making Singapore a relatively more expensive market compared to just months earlier. In fact, it has climbed nine positions in Colliers International's latest half-yearly ranking of global office occupancy costs.

    In the latest survey in June 2010, Singapore was the 15th most expensive office location surveyed, with an average occupancy cost of US$58.08 per square foot per year for Grade A Central Business District office space. This marked an increase of 8.1 per cent over the average annual rental of US$53.71 psf in December 2009, when Singapore was in 24th position.

    Hong Kong remained the most expensive office market, with an average rental of US$161.42 psf per year in June 2010. This means Singapore's office occupancy cost was about 64 per cent below Hong Kong's, underscoring the Republic's competitiveness against its arch rival, argued Colliers.

    For Hong Kong, the increase in office occupancy cost over the six-month period in US dollar terms was muted (from US$161.14 psf per year in December 2009) because of the weakening Hong Kong currency against US dollar. However, in local currency terms, Hong Kong's Grade A CBD rental rose at a faster clip of 14.1 per cent during the six-month period compared with a 7.6 per cent increase in Singapore.

    An exchange rate of US$1=S$1.40 was used for both surveys; the rate was US$1=HK$7.78 in the latest June 2010 survey, against US$1=HK$6.84 in the December 2009 survey.

    London West End, Tokyo and London City retained their second, third and fourth spots respectively. Delhi went up from 27th in December 2009 to 13th in June 2010. Sydney emerged 18th in the latest survey, up from 28th previously.

    Giving an update on the latest performance of the Singapore office market, Colliers said that the average gross monthly rental value for Grade A CBD office space appreciated 8.7 per cent quarter on quarter to $7.36 psf in Q3 this year following a 7.6 per cent escalation in the first half of 2010.

    In the Raffles Place/New Downtown micro-market, the average monthly rental of Grade A office space rose 10.9 per cent quarter on quarter to $8.07 psf in Q3.

    'The office property market sped ahead in Q3 2010 soon after turning around in Q2 2010, as robust occupier demand, amidst the buoyant economy, emboldened landlords to raise rents,' observes Colliers director of research and advisory Tay Huey Ying.

    The brisk leasing activity pushed up the average occupancy rate of Grade A space in the CBD from 93 per cent at end-Q2 to 94.1 per cent at end-Q3. In the prime Raffles Place/New Downtown micro-market, the occupancy rate for Grade A space rose from 96.1 per cent at end-Q2 to 97.4 per cent at end-Q3, attesting to the district's continued popularity with businesses, Colliers said.

    'With the worst of the global financial crisis behind us, demand for office space is expected to remain on a growth trajectory - with financial institutions once again accounting for the bulk of space enquiries and expansion,' Ms Tay said.

    CB Richard Ellis executive director (office services) Moray Armstrong said: 'There's a reasonable number of options available to occupiers but not as wide a spectrum of opportunities as there was nine months ago.

    'As a metric, if you needed a block of 40,000 sq ft a year ago, we could have found 26 buildings in Singapore with an aggregate of 4.7 million sq ft available in blocks of 40,000 sq ft or more. If you had the same-sized requirement today, you would have 16 buildings offering an aggregate space of 2.6 million sq ft. 'None of this leads one to conclude there is an immediate office space crunch but the market direction is pretty apparent.'

    Agreeing, DTZ regional head, occupier services, Angela Tan says: 'There are fewer options for occupiers and they're getting more expensive. Landlords who hike rents too fast may find potential tenants gravitating towards other buildings where rents are more competitive. Government should seriously review future pipeline supply; the Marina Bay area is still the preferred location for major financial institutions and global companies.'

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