Published January 27, 2007

Home, office rents soar to eight-year high

Q4 2006 private home rents up 14%; office rents up 30.3% year-on-year


RENTS for homes as well as offices have soared in the past year, with the latest official rental index figures showing levels not seen in at least eight years.

For private homes, the Urban Redevelopment Authority's rental index for the fourth quarter of 2006 is now 14.1 per cent higher than it was a year ago. The index has gone past the peak in Q3 2000 and at its highest since Q3 1998. It is also 18.6 per cent above the trough of Q2 2004.

Office rents increased even more dramatically, with the index for all areas up by 30.3 per cent year-on-year. The index is higher than the recent peak of Q1 2001 and the highest since Q1 1998. It is also 52.8 per cent higher than the trough in Q1 2004.

Other sectors including shops and industrial space registered more moderate year-on-year increases of 5.6 per cent and 4.2 per cent.

Most analysts say one factor in the upward pressure on residential rents is the depletion in stock due to collective sales. CB Richard Ellis (CBRE) Research executive director Li Hiaw Ho says: 'Just in the Orchard area alone, we expect a depletion of some 900 apartments as these properties give way to new developments.'

By Savills Singapore's calculations about 6,000 homes have been lost through collective sale in the last two years. The agency's director (marketing and business development) Ku Swee Yong believes this suggests 'net negative supply' for 2007, and could push rents up another 15-20 per cent by the end of the year. Based on Savills' own basket of properties in the prime districts, rents increased 19 per cent year-on-year from $4.08 psf to $4.87 psf, and 6 per cent quarter-on-quarter from $4.58 psf.

Comparing the increase of the rental index against the property price index - which also saw record highs in Q4 2006 - Mr Ku says the figures seem to support the line that property speculation is not rampant as the 'capital values are supported by the rental values'. 'This would not be the case in a speculative market,' he says.

Still, Chesterton International head of research and consultancy Colin Tan reckons the rental index could be more useful if it were broken down into sub-indices reflecting geographical areas. He believes rents in some areas have increased by as much as 50 per cent.

Knight Frank director (research and consultancy) Nicholas Mak believes expatriates make up 90 per cent of the rental market.

Mr Mak also noted that the 14.1 per cent increase is the steepest since 1991, which could signify a milestone in the property market as he believes the performance of private residential rental index can be more 'timely' than the property price index. 'The rental index gives a gauge on the property market even for properties that do not register high transactions,' he explained.

As such, the dramatic increase in the rental index for offices, which increased 11.6 per cent quarter-on-quarter and 30.3 per cent year-on-year, should be setting off alarm bells.

Most analysts have lamented the lack of new office space supply.

At CBRE, Mr Li notes that official figures reveal that demand for office space totalled 2.4 million sq ft in 2006, higher than the 1.959 million sq ft for 2005. 'The steepest rental increase is expected in the next 12-18 months as demand drivers remain extremely strong,' he added. CBRE estimates prime rents to rise between 35-40 per cent during 2007.

Demand for shop space was about 980,000 sq ft or 8.3 per cent higher than 2005. Mr Li notes that new supply of about 1.7 million sq ft was added in 2006 and quickly absorbed. The last peak was 1.78 million sq ft of new supply in 1998.