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Singapore -Office rents may hit 6-year low

MONDAY, 02 MARCH 2009

A recent research paper released by Citi bank pointed out that about 5 million sq ft of commercial space will come into the market this year and the next. However, demand has been slow as companies are still regrouping themselves and seeking cost-cutting measures in order to stay afloat in these uncertain times.

As such, commercial rents will be severely dented in coming months.

Citi report pointed out that prime rental rates are likely to fall by a further 60% over the next two years to reach $6 psf (per sq ft), assuming that the net space given up is about 50,000 sq ft. The record low rent for prime office space was set during the Sars crisis at $4.50 psf. At the height of the bull-run in 2007, prime office rents surged to $18.40.

Another report from consultancy Cushman and Wakefield predicted that prime office rents will fall to $12 psf a month this year and to about $8 psf next year. They could be as low as $7.50 psf by 2011 with office vacancy rates rising to 11% to 15%. In Q4 2008, prime office rents suffered the first quarterly decline since the 1980s and the largest single-quarter drop falling 18.8% from the previous quarter.

On the other hand, non-prime ‘Category 1’ office space fell 6.5% in Q4 2008, according to the URA. However, for the whole of 2008, such rents rose by 5.8% but the rise was much smaller than the 56.1% jump registered in 2007. Median rent for non-prime ‘Category 1’ office space also dropped from an average of $13.57 psf pm in Q3 2008 to $13.00 psf pm in Q4 2008.

Category 1 office space refers to office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area.

Source: Nation Property