Shocking rent rises most in Singapore

Tenants worried as Grade A office rents shoot up 10/9 % in quarter, the most in Asia, making Singapore the fourth most expensive place in the region to set up shop.

According to a survey on regional office rents by Jones Lang LaSalle, Singapore and Beijing fared the best among other business centres in Asia Pacific in the 3rd quarter of 2010 in terms of Grade A rental performance. Both cities recorded a quarterly net effective rental growth of 10.9%. The survey also noted that the Asia Pacific Office Rental Index showed an increase of 1.8% in Q3, with more markets expected to move to the upturn phase as the landlords start to gain bargaining power across the board.

Singapore’s Current Standing within Asia Pacific
According to the survey, Singapore currently ranks 4th in Asia Pacific in terms of average Grade A rental values receivable by landlords, behind Hong Kong, Tokyo and Mumbai. The city-state ranks above other business centres in Southeast Asia, including Ho Chi Minh City (6th), Kuala Lumpur (21st), Bangkok (22nd), Manila (23rd) and Jakarta (26th).

For comparison purposes, the survey measures each city’s average net effective rent, which are in many cases equal to the average effective base rent stated in a typical leasing contract on a net lettable area (NLA) basis, excluding outgoings such as maintenance fees and property taxes. In contrast to the gross effective rent which measures total occupancy costs borne by tenants, the net effective rent aims to reflect net rental income receivable by property investors.

In this regard, landlords in Singapore in 3Q10 were able to receive an average rate of USD 671 per square meter per annum, after adjusting for rent-free and fit-out incentives. This is calculated by deducting the service charge used for building maintenance and the 10% property tax from the average gross effective rent payable by tenants.

Historical Review of Office Rents in Singapore
According to local convention in Singapore, rents in typical leasing negotiations are usually quoted on a gross effective, NLA basis. The average Prime Grade A gross effective rent in 3Q10 reached $8.70 per square foot of NLA per month. While it has already surpassed one of its peak levels in 2000, it is still about 16%, 23% and 52% below peak levels in 1991, 1996 and 2008, respectively.

Outlook
At present, Prime Grade A gross effective rents have increased 12.3% year-to-date and are on track for further growth by year-end. Upside potential for rents in 2011 & 2012 also appears visible considering their current level vis-à-vis previous peak levels. That said with large supply coming on-stream in 2011, vacancy rates look set to rise in the short term therefore even with steady demand levels rental growth is expected to be slower in H1 2011 compared to H2 2011 & 2012.

Chris Archibold, Head of Markets at Jones Lang LaSalle commented, “Levels of occupier interest in the new developments have been very strong over the last 6 months and we have seen numerous large relocation transactions which have bolstered investor sentiment.

“2011 will see significant supply coming on line but a fair degree of this is pre-committed and whilst vacancy will increase in 1H 2010 we do not foresee this having any adverse effect on rental,” added Mr Archibold.