OCCUPANCY rates for premium office buildings in the city have hit a historic high as the supply crunch for such prime space worsens.
New figures from property consultancy CB Richard Ellis (CBRE) show that the most-coveted 'Grade A' office space is now 99.3 per cent taken up, surpassing the previous high of 98.8 per cent in 2000.
The supply squeeze, coupled with persistently strong demand, will mean that companies looking to expand here will find it problematic to do so, said property consultants yesterday.
The current recovery in office rents will also quicken and there will be an accelerated spillover to lower-grade and suburban offices, which are seeing strong take-up.
Grade A refers to the most premium office space, which tends to be located in districts such as Orchard Road, Raffles Place, Tanjong Pagar and Marina Centre.
They are in severe shortage because developers have been reluctant to build new offices in recent years as a result of the 'unspectacular' performance of offices from 1996 to 2002, said Mr Moray Armstrong, executive director of office services at CBRE, the leader in the office leasing market.
The already tight supply situation is set to get worse with almost no new premium office space coming onstream until the Marina Bay Financial Centre (MBFC) is completed in 2010.
Even then, the MBFC will offer about 1.6 million sq ft of Grade A offices, taking the total new supply of office space over the next three years to about 2.4 million sq ft, said Mr Armstrong. This will meet only half the projected demand in that period, which is expected to be at least 1.5 million sq ft a year, or almost five million sq ft by end-2009.
The space crunch has already forced expanding firms to explore new options.
'Some firms may 'decouple' their operations,' said Mrs Ong Choon Fah, DTZ Debenham Tie Leung's executive director. This means moving backroom operations like call centres that do not need prime front-office space to suburban areas.
Mrs Ong raised the example of Merrill Lynch, which recently took up offices at 'less prime' HarbourFront for its operational support services.
At least one other financial services client at CBRE is also looking to grow its front-office 'client-facing operations' in its Central Business District (CBD) space by moving back-office operations to business parks perhaps, said Mr Armstrong. The spillover into less premium offices has seen take-up rates rise.
In the CBD, which also includes lower-grade offices, occupancy rates as a whole rose to hit 95.5 per cent in the third quarter, up from 92.9 per cent in the previous three months.
And in the suburban areas, offices were 98.5 per cent occupied by the end of last month, a sharp rise from the 94 per cent take-up in the second quarter.
Yet such space is running out quickly too, said Mr Chris Archibold, regional director and head of markets at Jones Lang LaSalle. 'The reality is, for Singapore at the moment, there isn't much back-office space either,' he said. This may result in firms choosing to expand in the region rather than in Singapore, he added.
'Most of the clients we work with are regional businesses, and if there is no space available here, some of them will look at moving business units or expanding business units in other countries. It's not the case to date but it will definitely be the case over the next 12 to 18 months.'
In the meantime, rents have also started to soar.
In the third quarter this year, average monthly prime rents climbed by 15 per cent over the previous quarter to $6.90 per sq ft (psf), said CBRE in a report yesterday.
Average Grade A rents rose 11.8 per cent to $7.60 psf per month over the same time, hitting $10 psf at the brand-new One Raffles Quay.
CBRE estimates that by year-end, monthly prime rents will reach $7.30 psf while Grade A rents will hit $8.30 psf on average.
fiochan@sph.com.sg
