There doesn’t seem to be any letting up on the space crunch for office space, especially Prime Grade A office space in Singapore. Given that it is expected to continue to climb 10% if not more for the rest of the year and probably into the early part of 2009. Given such news, I’m not surprised that Tenants are looking to jump ship to a cheaper locale and landlords looking to hike office rents further. Some medium sized companies have decided to purchase their own office space as opposed to renting it, saving them from such peaks in future.

Is this a good time to sell? Anytime is a good time (if you need to sell it) for now rentals are high, but will buyers buy as your property might not be giving good yields. So it is important to ensure to look at yields and not the rental income in absolute terms. Some buyers are mislead by high rentals, but low yield, will you still attract buyers? Perhaps it will, only if it is priced correctly.

The report by Deutsche Bank’s RREEF report claims that the office sector is currently still in the growth stage, a post-growth stage is expected in 2009, followed by two years of contraction, and finally recovery in 2012.

What I’m not so certain is the recovery in 2012. There should be massive office space supply by 2012, the report says that we’re going to start the recovery in 2012. Presently many companies have moved out from major business hubs across the island some from CBD have moved to the city fringe, others from the city fringe have moved out further to the regional business parks like those in Tampines and Changi for the east, Ang Mo Kio and Woodlands for the north, Bukit Batok and Jurong for the western side of Singapore. In fact I have seen many SMEs purchasing their own units in 2007 because of the exhaustion from having to suffer unecessarily when landlords want to increase rent unreasonably.

As mentioned in an earlier post – when CapReit acquired Atrium@Orchard they had said clearly that they will be raising rentals there and that it is presently ’under-rented’ with its present tenants paying an average of $6 psf, and will be raising it to  $10-12psf in 2010 and 2011. Click to read the trackback. But by 2010, it is doubtful that the tenants will want to stay in the same building that will see rent doubling. There will be more options for them by then. Would the new owners of Atrium @ Orchard be so confident that they can charge that type of rental!

Singapore has always loved getting top spots when comparing itself to its neighbours like Hong Kong, Seoul and Kuala Lumpur, it certainly does not want to be top on the list of being one of the most expensive cities in Asia to have an office.