Singapore trumps Hong Kong hard in office space affordability

Widest rent gap seen in two decades.

Facebook and LinkedIn are only two among many international IT companies that have established regional offices in Singapore. And it’s no great wonder, as Singapore’s office rents are almost half of that in Hong Kong.

Office rents in the country’s central business district averaged at around 6 USD per square feet per month. This is 47% cheaper compared to neighboring key city Hong Kong, which averaged at almost 12 USD per square feet per month.

According to data from CIMB, Grade A office space has a current vacancy rate of 6.6%, well below the historical average of 8.4%.

Office space in the CBD will continue to be scarce in the next two years, which bodes well for grade A rental rates.

Here’s more from the report:

Compared to residential, we are more positive on the outlook for grade A office, given a lack of supply in 2014-15. On an island-wide basis, we expect about 3m sq ft of office space to come onstream in 2014 and 2016, with negligible supply in 2015.

However, the supply is highly skewed, with supply in 2013-14 largely in the de-centralised areas and supply from 2016 onwards largely in the CBD.

We saw major financial institutions and MNCs de-centralising their operations in recent years, shifting non-core functions away from the CBD to reduce cost.

That has resulted in strong take-up and leasing activities in selective locations like Changi Business Park, Mapletree Business City and one-north.

We believe much of that has been done and incremental leasing activities should centre around grade A CBD supply as the premium of grade A over decentralised office rents has narrowed.