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SCMP Reporter

TENANTS in Singapore should get involved in long leases now to take advantage of low office rents ahead of an imminent shortage in supply, according to property agency director Christopher Fossick.

    Office rents had slumped 50 per cent in the past 18 months, putting them back to 1987 levels, he said.

   Mr Fossick, director of Richard Ellis, which handles 90 per cent of the office leasing market in Singapore, said the market appeared to have bottomed out.

   While it was still competitive, developers were not prepared to drop rents any further.

    ''Wait too long and the developers will all tell the same story . . . today we have space; in the next couple of years we know we won't,'' he said.

    Developers are predicting shortages of office space will occur in 1995 and 1996 as a result of the economic cycle, the irregular release of new land by the government, and the three years needed to finish new offices.

  ''It's steady now but, when it goes in two years, it'll go fast - just like 1989,'' Mr Fossick said.

    ''If I was a big occupier with a lease expiring in 1995 or 1996, I would renegotiate it in the next 12 months. You'll probably pay the same rent, but there'll be no capping review, no long leases then,'' he said.

    Developers have been on the losing end in Singapore for the past five years, as a result of an oversupply.

   Singapore emerged from recession in 1986/87 and demand for office space rose but, with no new stock coming on line, a severe shortage resulted in 1989.

    Rents shot up by more than 60 per cent to a peak of S$12 per square foot (about HK$57.60) in 1990.

    ''From 1987 to 1989, people realised the economy was picking up, and land was reclaimed for building, but that takes time,'' Mr Fossick said.

    A 1991 shortfall preceded a surge last year, when three million sq ft of space came on line - twice the historic annual take-up rate.

    ''Eighty per cent of it was in the central area and tenants had already anticipated this in 1991 and resisted high-priced rents, negotiated down, leading to a 1992 and 1993 rent drop,'' he said.

    ''Rents in the prime Raffles Place are now effectively S$6 per sq ft, or S$7 before deducting rent-free periods and freebies.''   Two million sq ft of new space is due for completion this year.

  The same amount is expected to come on line next year and four million sq ft in 1995.

    Normal leases are for three-year to four-year periods in Singapore but, in 1990/91, rents of S$12 per sq ft spurred landlords to lock tenants into six-year leases.

    About 85 per cent of the space made available last year and 67 per cent of space coming on line this year has been taken up, with half of the buildings filled.

    With less pressure on space than Hong Kong, and with easing rentals, people are leasing bigger areas.

    ''There is a new wave of multinationals moving to Singapore; companies finding their Asian business has increased so much they need top-level management here,'' Mr Fossick said.

    ''Tokyo is now too expensive so they are looking in Singapore and Hong Kong, which are better strategically for Southeast Asia anyway.

    ''One example is British Telecom in Singapore, which jumped from 3,500 sq ft of office space in 1990 to the 22,000 [sq ft] they have now in Singapore.''     Firms relocating to Singapore can capitalise on cheaper wages, office and residential rents: a 1,500 sq ft flat in Singapore costs S$6,000 a month to rent.

    Other factors which were bringing companies to Singapore, instead of Hong Kong, were less job changing, political stability, and the best location for the developing markets of Southeast Asia, Mr Fossick said.

    ''Because of the slump, the government has not released any land and developers have not built anything, so with three to four years needed for new space to be ready, a shortage in 1996 looks inevitable,'' he said.



Long-term leases best in Singapore