PROPERTY MARKET TRENDS (CBD OFFICES)

Abstract

Capital values of office space have been rising from the bottom of the office market cycle reached in December 1993. Increasing rentals and capital values of office space in Singapore are causes of concern as they contribute to increasing business costs. It will erode the competitiveness of Singapore as a regional business hub. This study attempts to investigate how the demand and supply of office space affect office property values. A review of the office space market in the period 1986 to 1995 is made to understand the demand and supply factors that affect the office market. A trend analysis that relates occupancy rates to the rents and capital values of office space is conducted. It is found that occupancy rates has a lead effect on the rents and capital values of office space. The demand and supply factors that affect the office market are identified. The overall demand and supply situation of CBD offices from 1996 to 2000 is evaluated. A regression model is constructed to investigate the significance of the demand and supply factors that affect the office market and to produce an estimate of the future CBD office space capital values. Research findings show that not all the demand and supply factors have a significant impact on the rentals and capital values of office space. The significant factors that affect office capital values are GDP growth rate and occupancy rates. The regression model indicates that if an average annual supply of 250,000 sqm (from 1996 to 2000) is released into the market, capital values may fall to 1992 to 1993 levels ($14,784 psm) when the market also experienced a similar glut in CBD office space. The study concludes that the government needs to be sensitive to market trends, enabling them to forecast accurately fluctuations in demand and supply and hence minimize the volatility of office space rentals and capital values. This can be achieved through a better classification of market demand and supply data into the different micro-markets, so that the specific needs of each micro-market can be addressed.