ST : S'pore tops in office rental growth

Nov 23, 2010

S'pore tops in office rental growth

It shares the spot with China with 11% growth

By Esther Teo

OFFICE landlords here have much to cheer about after rises in third-quarter Grade A rents outshone gains in other Asia-Pacific business centres.

Singapore, along with Beijing, topped the table, according to a survey by property consultancy Jones Lang LaSalle (JLL).

Both recorded quarterly net effective rental growth of 10.9 per cent in local currency terms. This excludes outgoings such as maintenance fees and property taxes and aims to reflect the net rental income earned by property investors.

Gross effective rent measures the total occupancy costs paid by tenants.

Singapore was ranked fourth out of 26 Asia-Pacific cities in terms of net effective rent, with landlords getting an average of US$671 (S$870) per sq m a year, JLL said.

This level is behind those of Hong Kong, Tokyo and Mumbai, but above those of other regional business centres such as Ho Chi Minh City, Kuala Lumpur and Bangkok, which rank 6th, 21st and 22nd respectively.

JLL said the average prime Grade A gross effective rent here in the third quarter was $8.70 per sq ft of net lettable area per month.

This puts it above levels in 2000, but it is still about 16 per cent, 23 per cent and 52 per cent below peak levels in 1991, 1996 and 2008 respectively, JLL added.

The firm said that although prime Grade A gross effective rents have increased 12.3 per cent so far this year, more rises are expected by the year end.

'Upside potential for rents next year and in 2012 also appears visible considering their current level vis-a-vis previous peak levels,' JLL added.

Still, a large supply of office space is set to come onstream next year, which means vacancy levels are expected to rise in the short term.

Even with steady demand levels, rental growth is expected to be slower in the first half of next year compared with the second half and further on in 2012.

JLL head of markets Chris Archibold said levels of occupier interest in new developments have been very strong over the last six months.

He added that the numerous large relocation transactions have further bolstered investor sentiment.

'Next year will see significant supply coming online but a fair degree of this is pre-committed, and while vacancy will increase in the first half of next year, we do not foresee this having any adverse effect on rentals,' he said.

JLL also said the Asia Pacific Office Rental Index gained 1.8 per cent in the third quarter, with more markets expected to strengthen as landlords start to gain bargaining power across the board.

Mr Ong Kah Seng, Cushman and Wakefield's

senior manager of Asia-Pacific research, said that new multinational corporations entering the market looking for space and existing companies embarking on expansion plans have helped the recovery in prime office rents.

Companies generally recognise that prime office rents are still way below the record high in mid-2008, he said.

There is also a limited forthcoming supply as the lacklustre years in the second half of 2008 and last year saw a dearth of new office development plans being kicked off, Mr Ong added.

esthert@sph.com.sg