AN ECONOMETRIC STUDY OF THE SINGAPORE OFFICE SPACE MARKET

Abstract

This study applies structural econometric methodology to estimating the Singapore office space market. One assembles time series data from 1985 to 1999 and estimate equations for demand, rents and supply. The estimation results show that office space demand and supply are explained by rents, the business cycle, and users and suppliers' expectations. The State's land sales programme also influences supply positively. The supply sector is further shown to be relatively more responsive than that of demand. Rents are in turn determined by vacancy rate and tenant mobility. The presence of lags and the successful application of the partial adjustment mechanism to the estimation confirm the existence of a stock and rental adjustment process in the market. The future of the office space market then rests on Singapore's ability to generate sustainable growth in the finance and business sector, which in turn hinges on the successful implementation of the Industry 21 economic blueprint. This will correspondingly allow for the full realization of the 1991 Concept Plan, which seeks to provide infrastructural support for the blueprint by doubling the current stock of office space. The significance of the land sales and expectations variables indicate that the government should make calculated and timely decisions in the launching of land sales and anti-speculative measures to effectively moderate the property cycle. The significance of lags and the partial adjustment mechanism imply that users, suppliers and policy makers should, bearing in mind the relative responsiveness of the supply sector, take into account the long run effect of each decision.