Rental as Percentage of Total Expenses of SMEs

7 Mr Leon Perera asked the Minister for Trade and Industry (Industry) how do the absolute and relative costs – as a percentage of total expenses – of owning or renting property borne by SMEs and startups in Singapore compared to countries with a strong startup and SME sector, including Germany, Switzerland, Israel, Japan and the USA.

The Senior Minister of State for Trade and Industry (Dr Koh Poh Koon) (for the Minister for Trade and Industry (Industry)): In line with global norms, purchases of property are considered as additions to fixed assets and do not form part of business costs. As for rental costs, these generally make up a small share of total business costs for SMEs in Singapore.

In 2016, rental costs contributed to between 0.4% and 5.3% of SMEs' business costs in the manufacturing sector and 8% or less of SMEs' business costs in most services sector.

Although the rental cost share for SMEs in the retail sector was higher at around 30%, retail rents have been on a decline in recent years, falling by 16% from 2014 to 2017. Similarly, office rents have fallen by about 14% since peaking in 2015, while those for industrial land decreased by 13% since peaking in 2014.

In absolute figures, the median rental per square foot per month in the last quarter of 2017 was about $9 for office space in Core Business areas and close to $5.50 in other areas; almost $10 for retail space in Orchard Road and about $5.50 in other parts of the Central area. For industrial space, the median rental per square foot per month in the last quarter of 2017 was about $2 for a multiple-user factory space and about $4 for Business Park space.

On the back of the decline in rentals, only 13% of the 2,500 SME respondents in the 2017 SME Development Survey conducted by DP Information Group cited high rental costs as one of the top business concerns in 2017, representing a decrease from 18% in 2015.

While the Government does not collect data on rental costs borne by SMEs and startups in other countries, property consultancy studies show that Singapore’s rents are generally competitive or comparable to similar cities in the United States, Switzerland and Japan.

To ensure that there continues to be sufficient flow of commercial and industrial space to meet demand and support economic growth, the Government releases land for private-sector developments through the Government Land Sales (GLS) programmes. JTC also develops innovative industrial facilities with shared services to help SMEs reduce capital expenditure and operating costs. To support startups, JTC has developed startup clusters known as LaunchPads. As startups may have different space requirements, JTC offers options ranging from bare units to units with air-conditioning and ready power provision. The startup community has taken well to the Launchpads.

The Government will continue to closely monitor the industrial and commercial property markets and ensure the stability and sustainability of rentals for businesses over the medium to longer term.

Mr Leon Perera (Non-Constituency Member): I thank the Minister of State for his comprehensive reply. Just one supplementary question. The Minister of State mentioned that the rental costs are comparable to major cities in the US, Japan and Switzerland. I think in some of these countries, SMEs may have the option of moving to the outskirts of the city and renting industrial property or even light industrial or commercial properties. I am not sure if that has been factored into the statistical comparison that the Minister of State mentioned.

So, my question is: will the Ministry consider studying the comparison between rental costs here and rental costs in key cities in these other countries, including the outskirts, and monitor that and study if that level of rental costs that we have is serving as an impediment to entrepreneurship or people wanting to continue in SMEs going forward.

Dr Koh Poh Koon: Sir, I think we have provided for a good quantity of startup spaces that enable entrepreneurs to start their business, so one of the ideas is to start Launchpads. We are beginning to create more space for new entrepreneurs to start their businesses and Launchpads for innovation. I think that has been well received by entrepreneurs. The take-up rate in one-north area is almost 90%. JTC will continue to look at the demand and if there is more demand, we will see how best we can create some spaces for innovation and Launchpads for entrepreneurs to take off.