Colliers International, Singapore

A global office real estate mid-year review conducted by Colliers International revealed that Singapore is among one of the top few cities – in both Asia Pacific and worldwide – where the office sector continues to see robust demand in the first six months of Year 2008, highlighted by high rents and low vacancy rates. 

The global office real estate mid-year review, which tracked office performance across a total of 168 cities worldwide, revealed that while demand for office space across many markets worldwide was weak from Year 2005 to 2007, it has bounced back on track in the first half of Year 2008. In general, to date, developing economies remain largely unfazed by the worldwide financial markets’ volatility, and continue to show solid growth and a healthy appetite for office space. A similar pattern exists for office building sales with investment volumes holding up in Asia Pacific, but down in Europe and North America.  

Occupancy costs (average annual gross rents of CBD Grade A office space)
Office rents within the Asia Pacific region have generally maintained an upward trend with just a few exceptions. In a ranking of highest occupancy costs in Asia Pacific, Singapore bagged the third position, with an average annual gross rent of US$125.06 seen for CBD Grade A office space.  Hong Kong and Tokyo took the top two spots, with an average gross rent of US$213.68 and US$129.01, respectively. 

On a global comparison, Singapore came in as the seventh most expensive cities.  Hong Kong topped the list with the most expensive average gross rents for Grade A office space at US$213.68, followed by London West End (US$207.42) and Moscow (US$167.29). 

Ms Tay Huey Ying, Director of Research and Advisory at Colliers International, says, “Singapore’s high global ranking in office occupancy costs is supported by her rapidly-growing status as a leading financial centre. In fact, in the recent MasterCard study on Worldwide Centres of Commerce, Singapore emerged fourth on a global comparison, overtaking Chicago and Hong Kong, and was placed number two in Asia behind Tokyo.

Vacancy rates
Many office buildings in prime CBD districts in Asia Pacific registered low vacancy rates. With a vacancy rate of 7.5% in June 2008, Singapore took the 13th position in the Asia Pacific ranking. Perth topped the region’s (and the world’s) list with the lowest vacancy rate of 0.3%, followed by Seoul and Brisbane at 0.7% and 1.2%, respectively.   

Ms Tay comments, “Singapore registered a comparatively higher vacancy rate in the first six months of this year and this was due in part to the government’s efforts in providing relief to the supply shortage by leasing out some disused State properties and selling several sites for transitional office use. These strategies are bearing fruit as firms are seen to be increasingly receptive to these alternative business locations/premises. Hence, office users, who have had to grapple with the frenzied pace of rental growth experienced since mid-2006, can in the meantime heave a sigh of relief as rental growth eased substantially in the first half of 2008 on the back of reduced pressure on supply.” 

Global investment sales
On the sale front, investment demand worldwide slowed as indicated by the fewer number of sales transactions recorded in the first six months of the year, relative to the corresponding period in Year 2007. 

Global office investment fell by 60% (-41% excluding portfolio sales) during the first half of the year, falling from US$268.6 billion a year ago to US$108 billion during the first six months of Year 2008. 

Sale prices moved lower as capitalization rates/yields shifted higher in all regions. The well-documented credit crunch, combined with a more sluggish global economy, has put a considerable damper on investment sales with investors showing prudence and lenders tightening underwriting standards. “De-leveraging” across almost all asset classes, including real estate, has put considerable downward pressure on prices, as banks across the globe struggled to strengthen their respective balance sheets and prepare for a period of illiquidity. Office fundamentals also started to waiver in the face of weakened demand particularly from the financial services sector. 

Nonetheless, Asia Pacific fared considerably better than other regions, with a number of markets posting substantial volume increases. While Singapore witnessed the volume of office transactions increase by 58%, Japan, in particular, saw her office transactions increase by 103%. 

Looking forward, office markets in all regions are expected to become more subdued as the global economy slows and lenders remain cautious.

In Asia Pacific, the region remains characterized by high levels of office construction while on the demand side, most economies across the region are expected to continue posting very high growth rates, although not at levels witnessed for the past several years.

Ms Tay concludes, “Specifically for Singapore, pressure on office supply will continue to ease as the trend of filtering out to alternative business locations continues – along with a more subdued demand expected for office space in 2H 2008 on the back of global economic and financial turbulence.  Rents are forecast to hold firm for the rest of 2008.” 

In the United States, new office supply is anticipated to stay relatively high for the next six to 12 months, while demand is expected to remain subdued.  Hence the office market is unlikely to show any signs of expansion till Year 2009. 

In Europe, numerous Western European markets are now characterized by rising vacancies and a corresponding softness in rents, while most Central and Eastern European markets continue to demonstrate robust leasing conditions. Office markets in the Middle Eastern countries continue to show few signs of slowing, while the South African markets are still registering lower vacancy rates and higher rents. With a growing number of faltering economies in 2H 2008, a continuation of rising vacancies could be experienced in the EMEA region.

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 10,092 employees span the world in 267 offices in 57 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,349.

Contact Information

Ms Seah Li Ching
Senior Executive, Marketing & Communications
Tel:  65 6223 2323
Direct: 65 6531 8545

Ms Tay Huey Ying
Director, Research & Advisory
Tel: 65 6223 2323
Direct: 65 6531 8658

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