Grade A office rents to drop 20–25 percent, according to Savills

Rental rates of Grade A office spaces in Singapore are expected to drop by 20 to 25 percent this year. This will widen the gap between rents in the country and in Hong Kong, and will give Singapore a more competitive advantage when it comes to companies looking to expand their business in Asia, said property firm Savills.

Rental rates in Singapore could fall to $5 per square foot (psf) a month next year, as a massive new supply of office blocks come on stream.  

By contrast, office rents in HK are expected to increase 5 to 10 percent this year, on the back of a supply crunch and the anticipated increase in demand for Chinese firms looking to expand.

“The good news is that over the next year or two, Singapore is going to look a lot more competitive in the region, particularly in comparison to Hong Kong,” said Simon Smith, Savill’s Head of Research & Consultancy for the Asia Pacific. His research shows that HK Grade A office rental premiums over Singapore could surge to as high as 150 percent.

The supply of Grade A office buildings in Singapore will increase by 47 percent between 2010 and 2012, with over 7.7 million square feet of office space being added.

Savill’s worst-case scenario forecast estimates that the average take-up will reach 950,000 square feet a year over the next three years. The rental market is expected to bottom out next year, at an average rate of $5 psf per month.

One analyst from another firm said that the $5 psf per month decline is “possible”, but noted that he was not sure how large the fall would be.

Separate data from CB Richard Ellis (CBRE) showed that Grade A office rents in Singapore fell from $15 at end-2008 to $8.10 at end-2009. CBRE expects Grade A office rents to drop to $7 by the end of this year, a 13.6 percent year-on-year fall.

Mr. Smith also noted that the completion of new buildings will bring about a “flight to quality”, as tenants move to better office buildings. This could lead to a fall in occupancies and rentals at less-prime Grade B office buildings.