Modelling the Commercial Property Market: An Empirical Study of the Singapore Office Market

Abstract

This paper disentangles the complexities of the commercial real estate market and provides a clear structure to understand the key determinants driving property market performance. There is a preference for using GDP, unemployment rate, and office (FIRE) employment as the main determinants of the space market (demand side); office floor stock, construction orders and vacancy rate (especially in the United States) as the property market (supply side) determinants in the office market. A regression model for Singapore’s office property market for the period from June 1992 to December 2005 was constructed. The office rent equation was able to account for 72 per cent of variation in gross rent for the period June 1992 to December 2005. Changes in previous year vacancy rates, contemporaneous construction costs, prime lending rate (lagged 6 months) and contemporaneous office sector employment were identified as the key determinants in explaining the variation in office rents in the Central Region of Singapore.