DYNAMICS OF OFFICE DEMAND IN SUBZONES

Abstract

Theoretically, it has been accepted that within an office location or subzone, office demand and rents are adjusted when the actual vacancy rate departs from its natural rate. However, this study takes a comprehensive approach that simultaneously considers the performance of competing or neighbouring office subzones. This will enable precise analysis of a subzone's behavior and evaluation of its performance both on its own as well as when compared with the other subzones. Examining the interaction of office demand in different subzones would enhance our ability to understand the changing dynamics of the Singapore office space market in general. This study first lays out the theoretical framework for analysing the interactions of subzones. It later seeks to apply the theory of office space demand to Singapore office market developments and explore the interactions of subzones in the office market from the 1980s. Finally, the study undertakes to examine the empirical relationship between two subzones of the Singapore office market: Central Area and Fringe Area. Granger causality tests are demonstrated to examine the relationship in their vacancy rates. With respect to the impacts of vacancy on rental and new supply, the study goes on to simultaneously examine the two areas using multiple regression analysis. The results of both tests provided evidence of the Central Area performance impacting the Fringe Area performance. This research will aid policy makers and market players in gaining a better understanding of the changing and constantly interacting dynamics of office space demand in subzones.