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Firms expanding may have to consider buildings outside the CBD

SINGAPORE is now the 17th most expensive office location in the world, moving up five places from its previous 22nd spot in 2006.

The World Most Expensive Office Locations

According to a report by Cushman & Wakefield (C&W), office rents in Singapore’s prime office locations have increased by up to 40 per cent year on year and are now $8.10 psf per month.

C&W Singapore managing director Donald Han says: ‘2007 will continue to see a further shrinkage in prime office supply in the CBD as development activity is low compared with demand. We expect rents to rise further this year, largely due to the strength of the economy.’

C&W believes that companies expanding their operations have to consider secondary buildings or buildings outside the CBD to house support functions with many relocating to suburban areas.

Still, Mr Han tempered his sentiments on the supply crunch here by saying that the situation was still ‘manageable’.

‘You may not be able to find 40,000-50,000 sq ft office space in Raffles Place but you can still look at Shenton Way or Tanjong Pagar,’ he said.

Mr Han also noted that even though rents could make Singapore less competitive globally, ‘In general, my clients are not saying Singapore is getting too expensive.’ C&W’s report called Office Space Across the World compares occupancy costs in 211 key locations in 50 countries.

Of these locations, 94 per cent recorded a stable or positive annual growth and only 6 per cent experienced a decline.

London’s West End district retains its title as the world’s most expensive office location.

One square metre of prime office space there costs 2,009 euros a year (about $31 psf per month).

This is 35 per cent higher than the occupancy costs in Tokyo, at 1,493 euros and Hong Kong at 1,448 euros.

The demand for most markets has been from the financial services sector, which registered record levels of mergers and acquisitions, and more sophisticated global financial markets, the report said. India accounts for eight of the top 10 locations in terms of rental growth.

Fastest growth is seen in Mumbai’s central district of Worli (which also has the highest occupancy costs in Mumbai) and the Bandra Kurla Complex, in Mumbai’s suburbs.

These two locations have seen rents increase 107 per cent and 93 per cent respectively.

Source : Business Times - 15 Feb 2007

THE shortage of prime office space is becoming the next catalyst driving up the prices of real estate developers, already hot properties thanks to the buoyant market for high-end condominiums.

Traders have been using covered warrants as a way of getting cheap exposure.

Deutsche Bank figures show that about 13 per cent of the warrants turnover last week came from just two developers - CapitaLand and City Developments (CDL).

Among the most actively traded contracts was a covered warrant on CapitaLand expiring in July.

Deutsche Bank vice-president Sandra Lee said: ‘The highest daily turnover was reached last Wednesday when it was reported that CapitaLand bought the Gillman Heights condo for $548 million.’

On that day, turnover in CapitaLand warrants hit $19 million - equivalent to 13 per cent of the value of CapitaLand shares done.

But the prospect of rising office rentals is whetting the appetite of traders for more property stocks.

Merrill Lynch expects ‘Singapore prime office rents to touch Hong Kong rates for the first time in 2009′.

It is projecting that prime grade A office rents will rise to $12.80 per sq ft (psf) in 2009 from $8.80 psf last year.

Reflecting the interest in property counters, Deutsche Bank is issuing one new warrant each on CapitaLand and CDL next Wednesday.

Source : Straits Times - 14 Feb 2007

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.

Comparison of Rental Index 2006

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.

Source : Business Times - 27 Jan 2007

Latest URA statistics show rates returning to pre-1996 property market highs

With a whopping 30.3 per cent rise in rentals for the whole of 2006, the office property sector last year came close to the pre-1996 highs when the property market was at its peak. Latest statistics from the Urban Redevelopment Authority (URA) show prices of office space soared 7.7 per cent quarter-on-quarter and 17 per cent year-on-year while rents rose 11.6 per cent quarter-on-quarter and 30.3 per cent year-on-year.

The latest URA statistics show that for office property owners there has never been a better time than now in the last 10 years, say experts.

“These levels of rental and price increases were unprecedented in the past decade,” said property consultancy CB Richard Ellis.

The URA figures coincide with CBRE’s estimates which show prime office rents rose 13.2 per cent in the fourth quarter to $7.81 per square foot (psf) per month and average prime capital value rose 11.1 per cent quarter-on-quarter to $1,500 psf in end-2006.

According to Knight Frank’s head of research & consultancy Mr Nicholas Mak, this is “the largest annual rental increase since 1996″. The increase is almost similar to the rental index increase of 31.3 per cent in 1995. Mr Mak believes office capital values will rise by 20 to 25 per cent over the next 24 months.

“The office market is almost like a mirror image of the residential market in that high-end rentals are going through the roof, driven by strong demand from banks, financial institutions and business services companies,” he said.

URA figures show island-wide occupancy improved from 87.2 per cent in the fourth quarter of 2005 to 89.7 per cent in the fourth quarter of 2006. This is noteworthy, said CBRE, as occupancy rose even as new supply of 848,000 sq ft of office space came in during this period.
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According to the URA demand for offices island-wide came to a total of 2.4million square feet in 2006. This is higher than the 1.959 million sq ft for 2005 and even exceeds the pre-Asian Financial crisis average of 2 million sq ft.

And this demand is set to continue at a scorching pace, say experts. “There will continue to be a shortfall between supply and demand until the BFC is completed in 2010, said Mr Mak.

“If the above assumption is correct, there will be no ‘cooling effect’ from the completed office space. What we are going to see is a hotter and hotter office market.”

Knight Frank’s office highlights projects island-wide office occupancy rate to reach between 91 and 93 per cent, while occupancy for Grade A could reach between 95 and 99 per cent in 2007.

Source : Weekend Today - 27 Jan 2007

Average monthly rent of $7.70 psf also beats peak of $7.64 psf in 2001

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.

Republic Plaza

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 : Business Times - 26 Jan 2007