Published July 5, 2007

Treat forecasts of office rents with caution: URA

They may not have factored in additional supply generated by latest govt initiatives


(SINGAPORE) The URA yesterday said property consultants' projections of office rent hikes - like Savills' projection last week that Singapore office rents could surpass Hong Kong's by end-2008 - should be interpreted with caution.

This is because such forecasts may not have factored in the additional supply of office and business park space that will be generated from latest government initiatives, it said in a statement.

Yesterday, the authority launched the first transitional office site along Scotts Road next to Newton MRT Station. And if the response to the tender for this maiden site is good, the government will release a number of other such sites that have already been identified.

Transitional office sites are intended to relieve potential shortage of space, with offices built there being constructed quickly and not intended to become permanent features of the environment.

The Scotts Road site, whose tender closes on Aug 1, is being sold on a short-term lease of 10 years, with the office buildings on the site expected to be a low-rise development of about three or four storeys that can be constructed in about a year.

The URA said that JTC Corporation will allocate several business park sites in the next few months that will provide 1.3 million sq ft gross floor area (GFA) of business park space.

The likely developers of these sites are tying up with a number of financial institutions to house their backroom operations in the developments, the URA said.

Just last week, Savills suggested that office rents in Singapore could become more expensive than those in Hong Kong by the end of next year. Cushman & Wakefield's latest Singapore Office Snapshot showed that prime office rents in May stood at an average of $10.76 psf a month, up nearly 85 per cent from a year ago.

The Singapore planning authority said it is working towards releasing more detailed office rental and vacancy data on July 27 'to allow the public to have a more balanced perspective of the office market'.

'The government will also continue to monitor the office market closely and take other actions to provide additional office supply, where necessary, to moderate office rental increases,' URA said.

The authority set out the steps already taken by various public sector agencies to ensure sufficient office and business park supply in the short and medium term.

There will be about 1.17 million square metres (or 12.6 million sq ft) gross floor area of commercial space, which can be predominantly used for offices. Assuming that translates to roughly 9 million sq ft net floor area of offices, that is about 13 per cent of the office stock on the island as at March 31 this year.

This extra space will come in stages, and the full nine million sq ft increase could be available by as early as 2011, market watchers reckon. The extra space is made up of sites in the latest Government Land Sales (GLS) programme, other public sector sources to be made available in the second half of this year, as well as projects in the pipeline, such as Marina Bay Financial Centre Phase 1.

URA said that the islandwide demand for office space increased by an average of around 2.4 million sq ft per annum between 2004 and 2006.

In addition to this commercial space, there is 2.7 million sq ft of business park space - mainly from Changi Business Park, Alexandra Distripark and one north - due for completion between now and 2010, as mentioned in the Ministry of National Development's H2 2007 GLS programme announced last month.

On top of that, JTC is allocating business park sites soon that will provide a further 1.3 million sq ft of space.

The URA yesterday also officially launched a 99-year leasehold commercial site at Anson Road, which was in the reserve list and triggered for release recently with an application by a developer undertaking to bid at least $116.2 million, working out to $461 psf per plot ratio. The tender for this site, which can be developed up to 252,069 sq ft gross floor area, closes on August 28.

URA said that later this month it will launch the tender for a site at Marina View which can generate up to about 913,100 sq ft of offices. The plot is next to a plot launched in May this year which can generate up to 1.4 million sq ft of offices, the tender for which closes on Sept 19.

The transitional office site offered yesterday has 1.04 ha of land and can be built up to 168,627 sq ft of gross floor area.

Colliers International director (research and consultancy) Tay Huey Ying welcomed the concept of a transitional office site, saying it will help alleviate the supply crunch without creating any future glut. Ms Tay said that like other property consultants she does not expect big financial institutions to be attracted to such sites, suggesting instead they may appeal more to professional service providers like advertising agencies or architectural firms.

Knight Frank director Nicholas Mak reckons the Scotts Road plot could fetch bids of around $190 to $220 psf per plot ratio.

Some industry experts said it was difficult to predict the size of potential bids for the site. 'Because of the short 10-year tenure, which effectively leaves around just nine years to recoup the investment (factoring in one year for construction), it will be difficult to make the project feasible compared with sites sold on the usual 99-year lease,' said CB Richard Ellis executive director Li Hiaw Ho.