Office rental rates to continue rising but less likely to hit pre-crisis levels

Strong positive rental reversion to only come in 2013, says DMG Research.

“Spot office rents are recovering nicely although rate of growth of spot rent is coming off slightly. We think office rents will likely to grow positively but we do not think it will hit previous 2007-2008 peak,” said DMG property analyst Tan Chee How noting that negative rental reversion will persist until end this year.

Monthly average Grade A office rent in the second quarter of S$10.60 psf is a marked improvement from just $9.8 psf recorded end 2010 but remains far below 2007’s and 2008’s $16 and $15, respectively. Between 2007 and 2008, per month rental rates peaked at $18.80 psf in Q3 of 2008 shortly before the global financial crisis.

On the months going forward, Mr. Tan has this to say: “Despite the huge supply of office space coming up between 2H11 and 2015, we believe the new Grade A and prime office rental rates will continue to rise on the back of robust Singapore economic growth.”

DMG expects around 8,093 new additions to supply of office space between 2H11 and 2015.

According to Mr. Tan, positive rental reversion though wil begin in 2012 but will only gain strong momentum in 2013 given the current average rent of expiring leases for the next two years which are below the recorded $10.60 psf per month in 2Q11.

DMG reckons that the average rental rates of remaining leases expiring in 2012 and 2013 are $9.88 and $7.91, respectively.

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