High Rentals in Singapore and What You Can Do About It

The Rising Cost of Rentals in Singapore

High rental costs have become a significant burden for small and medium-sized enterprises (SMEs) in Singapore. With rising property prices and increasing demand for commercial spaces, many businesses are struggling to stay profitable. Rental expenses have grown to become one of the largest overhead costs for SMEs, making it difficult for them to sustain operations, expand, or invest in growth opportunities. As a result, many business owners are seeking ways to manage their rental expenditures effectively while maintaining their competitive edge in the market.

The Numbers: How Much Have Rents Increased?

The cost of renting commercial and industrial spaces in Singapore has been on a steady rise over the years. Recent data highlights just how severe the situation has become:

  • Industrial rentals in Singapore rose by 8.9% in 2023, compared to 6.9% in 2022, reflecting a trend of continuous price hikes in this segment.
  • Industrial rents and prices have increased for 13 consecutive quarters by the end of 2023, demonstrating the sustained nature of these rising costs.
  • The unit business cost index for the services sector increased by 8.8% in the first three quarters of 2022, mainly due to higher rental expenses, which continue to be a major concern for service-oriented businesses.
  • A 2023 survey found that 50% of SMEs listed increased costs and reduced profitability as their primary business challenge, a sharp jump from only 16% in 2022.
  • Another survey found that over 70% of SMEs identified rising costs as their biggest concern for 2024, reinforcing the severity of this issue across industries.

How Rental Costs Affect SMEs

For SMEs that typically operate with tight profit margins, rising rental expenses present several serious financial and operational challenges. High rents lead to:

  • Reduced cash flow: With more money being spent on rent, businesses have fewer resources to reinvest in product development, marketing, or hiring.
  • Higher product/service prices: In an attempt to offset rental increases, businesses may be forced to raise prices, potentially reducing competitiveness.
  • Risk of downsizing or closure: When rent becomes unsustainable, some SMEs may need to shrink their operations or shut down entirely, particularly in industries with lower profit margins.

The impact of rental costs varies across industries:

  • In manufacturing, rent accounts for 3% to 7% of business costs. While this may seem relatively low, it still contributes to overall expenses that affect profitability.
  • In food and beverage, rental costs are often one of the largest expenses, sometimes making up 20-30% of total business costs.

10 Strategies to Overcome High Rental Costs

Given these challenges, SMEs must take proactive measures to reduce the impact of high rental expenses. Here are ten actionable strategies:

  1. Optimize Your Space Utilization
    • Evaluate how much space your business actually needs and make adjustments accordingly. Consider flexible seating arrangements, shared workspaces, or remote work solutions to reduce unnecessary rental costs.
  2. Negotiate Lease Terms
    • Engage in discussions with your landlord to negotiate better terms, such as rent-free periods, longer lease durations with fixed rates, or rental rebates during downturns.
  3. Move to an Alternative Location
    • Relocating to business parks, suburban areas, or industrial zones can significantly reduce rental expenses compared to prime commercial districts.
  4. Leverage Government Support
    • Tap into initiatives such as the Industrial Government Land Sales (IGLS) program, which aims to increase the supply of industrial spaces and keep rental costs competitive.
    • More info: Ministry of Trade and Industry
  5. Share Office or Retail Spaces
    • Co-sharing workspaces, retail pop-ups, or warehouse facilities with other businesses can be an effective way to split rental costs while maintaining an effective operational presence.
  6. Consider Hybrid or Online Business Models
    • Shift parts of your business online to reduce the need for physical store locations. E-commerce, virtual consultations, and digital services can help lower dependency on costly brick-and-mortar spaces.
  7. Review and Reduce Other Operational Costs
    • Conduct a detailed expense audit to identify other cost-saving opportunities, such as reducing energy consumption, renegotiating supplier contracts, or automating manual processes.
  8. Invest in Technology and Automation
    • Digital tools, cloud-based operations, and automation can help streamline business processes, ultimately reducing the need for larger physical spaces and cutting down rental costs.
  9. Explore Government Grants and Subsidies
    • SMEs can apply for various grants such as the Productivity Solutions Grant (PSG) and the Enterprise Development Grant (EDG) to help with operational and rental costs.
    • More info: Enterprise Singapore
  10. Diversify Revenue Streams
  • Expanding into online sales, offering subscription-based services, or forming partnerships can help businesses generate additional income, offsetting high rental expenses.

Conclusion

The rising rental costs in Singapore are a growing concern for SMEs, making it increasingly difficult to operate profitably. However, by strategically optimizing space, negotiating better lease terms, exploring alternative business models, and taking advantage of government support, SMEs can effectively mitigate these financial pressures. Being proactive and adaptable in cost management will be crucial for business sustainability and growth in the years to come.


Empowering Businesses with SGTUFF

At SGTUFF, we believe in creating a level playing field for businesses in Singapore. Whether you’re a tenant navigating leasing challenges or an SME striving for growth, we provide resources and insights to help you succeed.

Here’s how you can get started:

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