AN EXAMINATION OF THE STRUCTURE AND DYNAMICS OF SINGAPORE'S MATURING CENTRAL AREA OFFICE SECTOR

Abstract

This dissertation’s study examines the structure and dynamics of Singapore’s Central area office sector. An understanding of the interaction between the macroeconomic variables (Gross Domestic Product and employment level) and the Central area office market (rent, occupied and available stocks) is useful to investors and developers. They can better evaluate their decision-making in commercial real estate investing and development projects. Policy makers can also better implement policies that help stabilize the office sector. The study is concerned with the impact of demand and supply side variables in explaining the underlying office sector factors. The existence of a long-run relationship among these variables is tested and a short-run adjustment error correction model (ECM) is correspondingly estimated. The findings reveal that a long-run equation can be estimated for office rent, with GDP, office employment and available stocks. The equilibrium rent reacts negatively and positively to office employment and space supply respectively. Granger Causality tests reveal that in the short-run, past GDP and occupied stock can help to predict future office rent. No variables are found to have significant predictive power on occupied stock. Available stock can be forecasted by past rent owing to the developers' profit-driven nature. The ECM reveals that lagged rent, net space absorption, office employment and GDP have a significant impact on the rental adjustment process. However, net space absorption can be corrected by changes in rent and supply in the short-run while changes in the available stock in the short run is found to be affected by rental movement.