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SINGAPORE is the seventh most expensive market for tenants of prime office spaces, a study by property consultancy Savills found. 

Topping the list was London’s West End region with a net effective cost to the occupier – that is, tenants’ rent and fit-out costs – of US$283.57 (S$375.24) per square foot (psf) annually. This was followed by Hong Kong with an annual net cost of US$228.64 psf, and New York’s Midtown with US$206.06 psf. 

Singapore came in seventh with an annual net effective cost of US$146.07 psf, up slightly by 0.3 per cent from the previous quarter. 

This came as gross prime office rents in major cities across the globe increased by 3 per cent year on year in Q2, and net costs rose 3.8 per cent as tenants continued to seek high quality premium office spaces, said Savills in a Tuesday (Aug 13) press release. 

The study also indicated that prime offices in Singapore have a 21 per cent price premium over the broader Grade A office market. Prime offices refer to the top tier of Grade A office spaces, typically demanding the highest 5 to 10 per cent in rents, whereas Grade A offices are the most modern premises in a central location. 

Ashley Swan, Savills Singapore’s commercial executive director, said: “Despite the continued lack of overall net demand and slow movement in the market, we have seen that the prime buildings (here) are still able to command higher rents due to their existing occupancy remaining healthy and occupiers looking to upgrade to a better building when opportunities arise.”

In the Asia Pacific region, prime offices had a price premium of 33.7 per cent over Grade A offices. 

The lowest price premiums were recorded in Sydney at 13.5 per cent and Seoul at 20 per cent. Savills said offices in high quality downtown buildings in these markets are already relatively pricey, and so prime stock may not differentiate itself enough through amenities or prestige to warrant high premiums. 

Overall, net effective costs in the Asia Pacific region remained flat in the second quarter.

The consultancy attributed this to several major Chinese markets that recorded significant cost declines in the quarter – Shenzhen, for instance, saw a dip of 4.4 per cent as occupiers focused on reducing operating costs. 

Going forward, Savills World Research associate director Kelcie Seller believes there will be a continued “flight” to prime spaces. 

“However, increased fit out costs and macroeconomic uncertainty may loom in the background of real estate decisions for the foreseeable future,” said Sellers. “Landlord concessions are likely to continue to favour tenants in markets where availability remains high, but in supply-constrained markets, we expect concessions to begin dropping and rents to rise.”

In the city-state, Alan Cheong, executive director of research and consultancy at Savills Singapore, reckoned that office rents will continue rising, albeit at a slower pace. 

This is due to the relative dearth of new supply at the start of this year, which has “enhanced” landlords’ confidence, he said. “When new supply entered the market in Q2, the holding power of the new building owners was strong and (they) did not yield to low ball offers.” 

“These twin conditions are likely to tide us through the year with rent increases ranging from negative 1 per cent to 1 per cent, with the top of class grade offices sporting renting increases,” said Cheong.