Office property market is not overheating after all

Thanks to competition for tenants, rental growth of Grade A office space has been in check.

Mr Calvin Yeo, Eecutive Director of Office Services at Colliers International, said, “As of 2Q 2011, overall CBD Grade A office rents remains some 37.4 per cent below the peak of S$14.22 per sq ft per month achieved in 3Q 2008, while the average monthly gross rents of Grade A office space in the Raffles Place/New Downtown micro-market is still some 41.9 per cent off the S$17.89 per sq ft per month in 3Q 2008.”

He pointed out that the release of the large amount of government land sites sold during the 2007/2008 market boom, which resulted in a strong pipeline of projects today to meet the wave of buoyant demand, has played a large part in bringing about this gentler recovery path.

"Additionally, competition for tenants – given the normalization of demand amid rising supply of office space, as well as business park space as an alternative option for qualifying users – has helped to keep the rental growth of Grade A office space, specifically in the Raffles Place/New Downtown micro-market, in check," explained Mr Yeo.

Colliers International noted:

Average monthly gross rents of islandwide Grade A office space recorded the third consecutive quarter of moderation in quarter-on-quarter (QoQ) growth at six per cent in 2Q 2011.

Specifically, average monthly gross rents of Grade A office space in the Raffles Place/New Downtown micro-market grew by seven per cent QoQ in 2Q 2011 to reach S$10.40 per sq ft per month. This is slightly less than the eight-per-cent gain recorded in 1Q 2011.

The continued single-digit rental growth indicates an inclination towards moderation, which is a positive sign that the office property sector has averted an overheating situation in the current recovery cycle. This also addresses concerns on the possibility of rents matching the previous peak achieved in 3Q 2008 in the short to medium term.

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