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Increases in cost of offices, shops starting to slow down

RESPITE may be in sight for those who have been griping about the surging cost of doing business in Singapore.

Latest figures show that the increases in the cost of shops and offices eased in the fourth quarter of last year, in line with a general slowdown in the property market.

Prices and rentals for these commercial properties soared for most of last year, especially for office space, which reached an all-time high amid an acute short supply.

This prompted complaints from businesses and sparked off worries about Singapore’s competitiveness.

But official data released by the Urban Redevelopment Authority yesterday may finally calm these jitters.

Rentals for offices rose by 10.9 per cent between October and last month, down from 14.8 per cent in the previous three months – which was a decade-high jump, said Mr Li Hiaw Ho, the executive director of CBRE Research.

The slowing could be ‘the initial sign that the numerous efforts by the Government to cool the sector are taking effect’, said Ms Tay Huey Ying, the director of research and consultancy at Colliers International.

These moves include releasing more land for offices as well as immediate steps such as short-term leases in existing buildings and temporary office plots.

Colliers’ own data shows that office tenants are becoming increasingly resistant to further rent rises. Rents for office space in several areas, including Grade A buildings in Raffles Place, have seen declining growth rates for the past two to three quarters, said Ms Tay.

She said this is because firms are more willing to explore alternative business space locations, including business parks and high-tech industrial space.

For the whole year, rentals for office space jumped by 56.1 per cent. The rental index is now at an all-time record of 175.1 points, said Mr Li.

Ms Tay expects growth to moderate next year as tenants hold out for the expected large new supply in 2010.

She is forecasting a rise of up to 20 per cent for Grade A office space.

As for shops, the rise in rentals has all but peaked. Overall rentals rose by 0.6 per cent in the fourth quarter, compared with 8.1 per cent in the previous quarter.

In Orchard Road, rental growth was almost flat at 0.3 per cent in the quarter. Shops on the fringes saw slightly higher growth, but suburban retail space did the best with a 1.3 per cent rise.

For the whole year, shop rents rose by 18.2 per cent.

But landlords wanting to raise rents this year are likely to face strong resistance from retailers, said Mr Nicholas Mak, the director of research and consultancy at Knight Frank.

‘With the projected large supply coming on stream next year, retailers would have more space choices and would resist large increments in retail rents.’

He expects rents to increase by 5 to 10 per cent for this year.

 

Source: The Straits Times 26 Jan 08

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