SHORTAGE OF OFFICE SPACES

SHORTAGE OF OFFICE SPACES: 6.

Mdm Ho Geok Choo asked the Minister for National Development, in light of the redevelopment of buildings resulting in shortage of office spaces in the city area and spiralling rental increases, what plans are there to help businesses relocate and whether his Ministry will publish or give information on alternative availability of office spaces for small and medium-sized companies.

The Minister for National Development (Mr Mah Bow Tan): Mr Speaker, Sir, the current tightness in the office space market is due to high demand, which is driven by Singapore's robust economic growth over the last two years, coupled with low net supply due to the previous few years of slow growth, the conversion of office space to other uses and the redevelopment of office buildings.

In fact, the increase in demand of 290,000 square metres in 2006 was the highest annual increase since year 2000. On the other hand, because not many new office projects were initiated in the last few years, and with the conversion of some office buildings to other uses and the redevelopment of office buildings, the net additional supply of office space was low. In 2005/2006, the supply increased by only 47,000 square metres.

However, the situation is expected to improve in 2010 when a substantial amount of new supply, totalling about 330,000 square metres, comes on stream. This includes 180,000 square metres of office space from Phase 1 of the Marina Bay Financial Centre. MND will continue to release land at a steady pace via the Government Land Sales Programme, to ensure that there is

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sufficient land for office developments in the longer term.

In the meantime, the market is already making some adjustments to mitigate the current tight situation. For example, some companies have started to reorganise their operations so that they can relocate either fully or partially out of the Central Area. This will free up some office space in the city.

Besides office buildings, space at business parks can also meet the needs of some companies. Backroom operations and data centres of financial institutions or SMEs can be housed in such business park space. For example, a new 20,000 square metres development has just been completed in Changi Business Park which can cater to such backroom user needs. More business park space is expected to be completed over the next two to three years, to help meet the office space needs of suitable firms.

Companies can also consider leasing vacant State buildings, such as office buildings or suitable old school buildings, which are immediately available and can be put to office use quickly. SLA has made available some 51,000 square metres of such space. More such properties suitable for office use will be made available in the next few months.

To further ease the short-term shortage, URA will be identifying sites for the development of transitional offices. These sites will be made available on short-term leases for the development of low-rise office buildings of about three to four storeys. They can be built quickly in about one year and at relatively low cost, and can thus meet more immediate needs. More details on the development of transitional offices will be made available shortly.

Sir, measures to meet office demand in the short term will not be effective if

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there is a continual depletion of office space through the conversion of existing office buildings to other uses. This is taking place despite the tight office situation, especially within the Central Area. As such, URA has announced earlier today that it will temporarily disallow conversion of office buildings to other uses in the Central Area until 31st December 2009.

Let me explain the rationale for this move. The conversion of office buildings in the Central Area worsens the current office situation in two ways. Firstly, it immediately removes supply from the office stock, as buildings are demolished or closed for refurbishment. Secondly, the decanted businesses exert additional demand as they have to look for alternative space to relocate their operations.

Many of these buildings are in reasonably good condition and can still meet the needs of most office users, especially in the next two to three years. While the Government does encourage building owners to rejuvenate and redevelop their older buildings, such redevelopment is not appropriate at this point in time. It will worsen the office supply shortage, and hinder our efforts to attract financial institutions and other businesses who are thinking of setting up offices or expanding their existing operations in Singapore.

MND and URA will continue to monitor the office market closely and when the supply situation improves, we will remove this restriction.

Sir, the Member also asked whether my Ministry will publish information on available office space. I would like to inform her that such information is already provided by property agents and consultants and are publicly available. There is no need for the Government to duplicate their efforts. However, what

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we can and will do is to publish information on the new supply of office space in specific projects that will be completed over the next few years. I hope the release of such additional information will improve the working of the office space market and facilitate the necessary market adjustments in supply going forward.

Mdm Ho Geok Choo (West Coast): Sir, I would like to thank the Minister for the comprehensive response to my questions.

Sir, I have two supplementary questions for the Minister: Would the Ministry consider some sort of a relocation grant to ease the burden of some of the SMEs who have actually been forced to shift because of redevelopment? In view of the fact that from now till 2010, when there will be more supply of office space, in the interim, would the Minister consider liberalising the use of residential homes for some of these operations?

* *Mr Mah Bow Tan: Sir, the Member asked whether we would consider a relocation grant to ease the financial burdens of SMEs due to redevelopment. If she is referring to the relocation of SMEs from existing commercial buildings, then this is something that the SMEs or the tenants have to take up and discuss with the landlords of the buildings themselves. However, if it is a matter of relocating from Government premises, eg, SMEs relocating out of HDB industrial parks, yes, there are schemes that are in place which do provide some relocation grants.

As for the interim shortage of office space, as I have explained earlier, this is due to quite a severe imbalance in supply and demand. The Ministry, as well as other Government agencies, is looking into various ways of meeting this

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demand, especially in the short term. And that is the reason why we have decided to allocate sites for transitional office space. Whilst there is sufficient space coming on stream in 2010 and beyond, the problem is a shortage of space from now until 2010. So, in order to try to meet that transitional shortage, we would like to offer such sites for transitional offices. And, indeed, these offices are quite easy to build and also very comfortable. I believe some Members may have visited the LTA offices in Kampong Java. These offices were built very quickly and at a very low cost. The people who are working there tell me that it is a very comfortable office to work in. So that can help plug some of the gaps.

For SMEs or small businesses who want to start up or who have difficulties looking for space, they are currently able to use residential premises for their office. HDB has a Home Office Scheme. The Home Office Scheme is very well taken up. Anybody who would like to set up an office for two to three people, or who would like to experiment and start off on a very modest basis, can register their office using an HDB address. In fact, many have already done so. If the Member is interested, I would be happy to send her further information on this scheme.

Ms Ellen Lee: Sir, I just like to ask the Minister, when he mentioned about short-term leases, is he talking about leases below three years until 2010 when the supply is stabilised? And what will happen to all these transitional offices once all these leases expire, because that would mean relocation and incurring more cost again for these businesses that have to relocate?

Mr Mah Bow Tan: Sir, the Member is correct in pointing out that if the leases are too short, there will be disruption problems later on when the leases expire. Similarly, if the leases are too short, then

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it is not worthwhile for people to take up those leases. So we are looking at a suitable lease which will not be too short but which will not be too long either that would cause the cost of the land to go up. We are looking at something around 9-10 years' lease, renewable over two to three tranches.

Mr Zaqy Mohamad (Hong Kah): Sir, I would like to know whether MND or any other Ministry has made an assessment of the impact of this rental hike: (a) on the survivability or cost of doing business for the small enterprises; and (b) on the price of consumer goods and services to the consumers.

Mr Mah Bow Tan: Sir, as far as the impact on the final price of goods and services to the consumers is concerned, the Ministry of Trade and Industry has a CPI index that it publishes regularly. I believe that the overall impact on inflation so far, not just because of the shortage of space and rent hikes but many other things, is relatively mild. I will leave MTI to announce the details.
As far as the impact on cost of doing business is concerned, let me just point out for Members' benefit that although our office rental rates have gone up, in terms of the overall comparison with other major global business hubs in the world, we are still ranked relatively low. Compared to, say, New York, London, Hong Kong, Tokyo, we are actually ranked quite far down the list. In fact, I have got some figures here. If I may share this with Members, there is a Global Office Occupancy Cost Survey that was done in January 2007, and it ranked Singapore number 55 in terms of overall office occupancy cost. I think they define this "cost" to mean not just the cost of rental per se but also the cost of maintenance, property tax, and so on. In terms of overall cost, we are number 55, way down the list. London is number one, then Hong Kong, New York, Tokyo,

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Seoul, and so on. This is obviously something which we would like to monitor closely. We do not want to price ourselves out of the market if the costs of doing business in Singapore are too high. At the same time, I think we should also bear in mind that there is a limited amount of rabbits that the Government can pull out of its hat in terms of keeping costs down, especially when it comes to land cost, especially in a situation where land is in short supply.