www.shaproperty.com

OFFICE rents, which are on a upward trend, show no sign of softening, says Knight Frank in a report on Singapore's office market. The property consultancy expects office rents to increase in the second half of this year by as much as 10 per cent for Grade A buildings in the prime area, and by 4 to 6 per cent on a islandwide basis.

Knight Frank attributes the expected rise to a shortage of new office supply in the prime Central Business District (CBD) area. 'With supply staying at stubbornly tight levels in the face of healthy demand, office rents will remain on course to ride the upward trend,' the consultants say.

'The second half of 2006 is likely to witness another period of sustained rental appreciation.'

One consequence of the rising rentals is that some firms in the CBD are considering relocating to the fringe areas, the report says.

In the recently concluded second quarter, rentals across all aspects of the office market moved upwards in unison, Knight Frank's report showed. Grade A office buildings remain highly sought-after.

Average rent levels for Grade A office buildings in Raffles Place grew by 3.8 per cent quarter-on-quarter to $6.10 psf while the nearby Shenton Way and Robinson Road rose by 3.5 per cent to $4.50 psf. Prime office rentals in the Suntec, Marina Centre and City Hall area also witnessed a rise of 4.3 per cent - to $5.50 psf.

The Orchard Road shopping belt continued to command high office rentals at $5.90 psf, 1.0 per cent higher than in the first quarter of the year.

Suburban office rents saw less upward pressure.

Knight Frank says that the outlook for office landlords remains bright as a result of strong demand - due to the rosy economic prospects of Singapore as well as the bullish sentiment in the banking and finance sector.

Increased demand for office space in the second quarter was fuelled by financial institutions. Reuters and Credit Suisse are expanding, and US investment bank Merrill Lynch also decided to set up a major global support operations in Singapore.

'The wave of new financial institutions setting up back offices and existing ones expanding their operations looks set to continue,' the report says.

'With the International Monetary Fund and World Bank meetings ready to be held in Singapore during September, there could be positive spillover effects into the finance sector.'