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Prime office rents in Singapore still competitive

Corporates still see value in operating out of Singapore, says DTZ

(SINGAPORE) Occupancy cost in prime Singapore office locations has risen 54 per cent in the first six months of the year. Though the cost is still lower than in Hong Kong, the increase here is still the fastest in the Asia-Pacific region.

DTZ Debenham Tie Leung defines occupancy cost as the average total cost of leasing prime net usable space of 10,000 sq ft within a prime CBD location. It includes rent and outgoings, such as maintenance costs and property tax, if these are normally payable by the occupier.

And according to DTZ, average occupancy cost has more than doubled from a year ago in the Raffles Place and Marina Centre zones where average rents are now S$13.10 psf per month and S$11.80 psf per month respectively.

However, DTZ’s report does show that Grade A office rents in general are still competitive compared to other regional cities at S$10.89 psf per month.

And although DTZ believes that ‘unrelenting office demand’, will see occupancy cost keep rising, its executive director Ong Choon Fah said: ‘A lot of corporates still see value in operating out of Singapore.’

Demand for office space has been ‘extremely strong’ from the financial sector but Mrs Ong notes that this has also begun to ‘trickle down’ to other support sectors, boosting demand further.

Supporting this is DTZ’s data which shows that Grade A vacancy rates in Singapore is the lowest at 2.6 per cent after Delhi at 0 per cent, followed by Shanghai (2.8 per cent), Tokyo (2.96 per cent) and Hong Kong (3 per cent).

Asked to comment on the figures for occupancy cost in Singapore, a URA spokesman said that the statistics were computed based on DTZ’s knowledge of rental transactions for a selected basket of prime office buildings as well as their estimates of ‘achievable rentals’ where there were no actual transactions done in certain buildings.

URA, which had also consulted DTZ on its figures, added: ‘The inclusion of pre-committed space may result in instances of double-counting of occupied office space, as the tenants may be vacating other office buildings when they shift to their new premises.’

Noting that different methodologies may result in different statistics, URA also noted that DTZ estimates that office occupancy rates for prime office buildings in Raffles Place, Marina Centre and Orchard Road for Q2 2007 were 97.4 per cent, 98.9 per cent and 96.9 per cent respectively.

By comparison, URA’s office occupancy rate figure for Category 1 office buildings in the Downtown Core – which includes Raffles Place and Marina Centre and Orchard Planning Area – was 95 per cent for the same period, and computed based on the physical occupancy of space.

URA also said that based on Iras’ records of rental contracts signed in Q2 2007, the median rental for Category 1 office buildings was S$10.33 psf per month.

DTZ said that although the increase in occupancy cost was the greatest in Singapore, occupancy cost is still the highest in Hong Kong at US$180.27 psf per year where base Grade A rents in the Central and Admiralty areas is S$20.09 psf per month.

This is followed by Tokyo at US$119.30 psf per year with base rent at S$150.55 psf per month, and Singapore at US$102.61 psf per year with a base rent of S$10.89 psf per month.

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Source: Business Times 14 Aug 07

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