THE NATURAL VACANCY RATE OF OFFICE SPACE IN SINGAPORE

Abstract

There has been extensive research on the natural vacancy rate of office markets world¬ wide. The concept of the natural vacancy rate is similar to the concept of the rate of unemployment. It arises because of the market imperfection giving rise to frictions in the market. There have been limited studies done on the natural vacancy rate within the Singapore context. Most related studies are carried out in the United States. These studies have concluded that there is an inverse relationship between rental movements and vacancy rates. Although, natural vacancy rate is defined as'long run' equilibrium, it could change over time, albeit slowly as the real estate market which has influence on the natural vacancy rate changes over time. (Khor,et.al, 1998) In the present study, the natural vacancy rate of 50 office buildings in the central area of Singapore is 13.5%, based on Rosen and Smith (1983) model. Several dummy variables are regressed against the dependent variable and only the grade of the office building has a significant impact. The R-square is 0.72, implying that the explanatory variables can explain 72% of the dependent variable. An investigation is also made to find whether the retail component has an impact in occupancy rate of office building. Both the statistical and survey results show that there is a relationship between the two variables.