Demand for prime office space lifts off
By Cecilia Chow & Timothy Tay
/ EdgeProp |
Brighter economic prospects have led to increased demand for premium office space, with giant schemes such as Marina One, DUO, Paya Lebar Quarter and Frasers Tower benefiting from a pickup in activity
Marina One’s light-up during its official opening ceremony on Jan 15 (Picture: M+S)
It could have been sheer coincidence, but Jan 15 turned out to be an auspicious date for marking significant milestones at landmark developments.
It was the day Marina One and DUO — two newly completed integrated developments with a combined value of $11 billion — were officially opened by Malaysian Prime Minister Najib Razak and Singapore Prime Minister Lee Hsien Loong. It was also the day Australian property group Lendlease held its topping-out ceremony for the first office tower at the $3.2 billion integrated development, Paya Lebar Quarter (PLQ), with Minister for National Development Lawrence Wong as guest of honour.
Singapore-listed property group Frasers Centrepoint celebrated the topping-out of its 38-storey Frasers Tower on Cecil Street on Jan 15 too.
‘Phenomenal take-up’
“The take-up rate of these new projects has been phenomenal,” says Christine Li, director of research at Cushman & Wakefield, with Marina One and DUO achieving close to 80% occupancy rates, while Frasers Tower is more than 70% taken up and PLQ is 50% pre-committed. “These projects are likely to reach almost full occupancy by the end of 2018,” she adds.
The events tell a bigger story about Singapore’s strong fundamentals and its growth as a major international business destination, notes Moray Armstrong, CBRE managing director — advisory & transactions. “All indicators are pointing to stronger leasing activity, as both existing and pipeline projects are recording notable increases in commitment levels, as evidenced by the swift take-up of space in Frasers Tower and Paya Lebar Quarter,” he says. “There is increasing realisation that the market could be turning faster than expected.”
Najib Razak, Prime Minister of Malaysia, and Lee Hsien Loong, Prime Minister of Singapore, at the official opening of Marina One and DUO by M+S
The Marina One integrated development features Southeast Asia’s biggest premium office floor plates. They span 100,000 sq ft across the 28th and 29th floors of the twin 30-storey office towers. One of the 100,000 sq ft plates has already been taken up by Swiss private banking group, Bank Julius Baer. Social media giant Facebook has taken up the other floor, in addition to several other floors to occupy a grand total of about 250,000 sq ft.
Tech companies growing office footprint
“While all sectors have seen expansion, the most rapid growth has been in the tech sector,” says Chris Archibold, JLL head of leasing. “As for financial institutions, the shrinking of office space prevalent in 2016 has abated. Most of the moves are now expansionary.”
Although tech companies have been growing their footprint rapidly, financial institutions are still the biggest occupiers of Grade-A office space, says Archibold.
“Over time, there is definitely more room for tech companies to grow bigger in the CBD, especially when they tend to significantly increase their space requirement every two years, going by the historical trend,” notes Cushman & Wakefield’s Li. With the dwindling CBD supply and tight vacancy over the next three years, some of these tech giants might run out of space to expand in the micro-market, she adds. That is when the possibility of moving to decentralised locations opens up. “Currently, there is no tech cluster in the CBD as well,” she observes. “The risk of losing some of these players is quite real.”
Rents to rise 15% to 20%
Since economic prospects brightened, prime Grade-A office has firmed up, with rents starting to recover from 3Q2017, says Credit Suisse in a report dated Jan 15. Big-ticket transactions such as the sale of Asia Square Tower 2 for $2.09 billion last September and bullish bids at government land sales have allowed for cap rate compression, with strong rental rate recovery of 20% priced in, say Nicholas Teh, Louis Chua and Daniel Lim, research analysts at Credit Suisse.
During 2017, the overall Grade-A CBD office rent grew by 6.6% to $9.20 psf per month, says Cushman & Wakefield’s Li, compared with a decline of 6.9% in 2016.
JLL’s projection is that premium office rents should increase about 15% over the next 12 months and could see further increases of 2% to 3% a quarter next year. Historically, among the main real estate sectors, office has been the most volatile. “Rents are never up just 2% to 3% a year,” says Archibold. “They tend to go up relatively quickly in an upturn, and come down relatively quickly too in a downturn.”
Generally, demand for office space averages a million sq ft annually, notes Archibold. “We were back to that figure in 2017,” he adds. His expectation is that office demand in 2018 should be around a million sq ft as well. In 2016, office demand totalled just half a million sq ft, he says.
An estimated 1.65 million sq ft of new Grade-A office space is expected to be completed by year-end, says JLL. In the CBD, they include Frasers Tower (663,000 sq ft) and 18 Robinson, a redevelopment of Robinson Tower into a new 137,000 sq ft Grade-A office tower. PLQ’s three office towers are also on track to be completed by year-end, introducing 850,000 sq ft Grade-A office space to the new commercial hub at Paya Lebar Central.
Marina One — major beneficiary
These new developments have been among the most active. According to Corporate Locations in its September market report, some companies that had signed five-year leases at historically high rents in the “mini-peak of 2011/12” realised that they were able to move to more efficient, newer office space while paying less than their current overheads. “With the prospect of limited medium-term supply, the larger space users are also aware of the need to make the decision to move within the next 12 months or wait another four years for the next batch of new developments to come onstream,” says Douglas Dunkerley, director of Corporate Locations.
Many of the large occupiers decided not to wait until 2021, and this is one of the reasons Marina One has been so successful, points out Dunkerley. Besides Facebook and Bank Julius Baer, some of the biggest tenants at Marina One are The Bank of Tokyo Mitsubishi, BP, Prudential Assurance and PwC. Shipping group Ocean Network Express (an alliance between Mitsui OSK, K Lines and NYK Lines) has also taken up 50,000 sq ft in the building.
Today, the 1.88 million sq ft of premium office space at Marina One is more than 70% taken up, with some tenants signing options to expand within the development, says Azman Yahya, chairman of M+S, the special-purpose vehicle of sovereign wealth funds, Malaysia’s Khazanah Nasional and Singapore’s Temasek Holdings, that developed the $7 billion integrated development.
Marina One’s retail and residences
In addition to the office towers, Marina One contains twin 34-storey residential towers with 1,042 units. All four towers are centred around a lush, “green heart” with more than 160,000 plant species.
The first four floors of Marina One comprise about 140,000 sq ft of retail space, more than 80% of which has been taken up primarily by F&B operators, says Kemmy Tan, CEO of M+S. Signature restaurants on the fourth floor are Japanese restaurant Wakanui Grill and Majestic Chinese restaurant. On the third floor, Virgin Active will open its biggest gym in Singapore, with a rock climbing wall and swimming pool. There is also a Cold Storage supermarket and Cookhouse by Koufu. “The retail tenants cater for both the people working at Marina One as well as the residents,” says Tan.
M+S launched the first tower of 521 units at Marina One Residences in October 2014 and is more than 80% sold. The second tower at Marina One Residences will be launched this year, says Azman of M+S. “We felt that there are two types of buyers — those who want to buy off-plan and those who want to buy a completed project.” Thus, it was a deliberate strategy to launch one tower off-plan, and hold the second tower until completion.
Azman: [For Marina One,] we felt that there were two types of buyers — those who want to buy off-plan and those who want to buy a completed project. (Picture: Samuel Isaac Chua/The Edge Singapore)
DUO Tower — more than 70% leased
Another integrated development by M+S is DUO on Beach Road. Completed last year, the $4 billion DUO contains the 660-unit DUO Residences, the 570,000 sq ft Grade-A office space at DUO Tower and Andaz Hotel.
DUO Tower is more than 70% leased, says Azman. Anchor tenants include US pharmaceutical company Abbot, global payments firm MasterCard and giant US energy group Chevron. Activity is picking up, with Sumitomo Chemicals taking up 30,000 sq ft in the building.
DUO has about 56,000 sq ft of retail space, and it is also more than 80% leased. With the generally more upbeat market sentiment, Azman expects the commercial spaces in both Marina One and DUO to achieve full occupancy by year-end.
DUO’s light-up during its official opening ceremony on Jan 15
Frasers Tower — more than 70% taken up
Frasers Tower, the 38-storey office tower scheduled for completion by year-end, is more than 70% leased; its retail podium has a take-up rate of close to 50%. Frasers Tower’s first major anchor tenants are Microsoft and French oil and gas company Total Oil, which will take up a combined total of 232,200 sq ft. Other tenants at Frasers Tower include Sumitomo Corp, Arup, Fonterra, Pacific Life and serviced office provider The Executive Centre. CBRE and JLL were appointed joint marketing agents at Frasers Tower.
The topping-out ceremony of Frasers Tower was officiated by (from left) Tang; Panote; Kim Jung Chul, chief operating officer of the building works division at Hyundai Engineering & Construction; and Kwak Im Koo, project director of Hyundai Engineering & Construction (Picture: Frasers Centrepoint)
“We are encouraged by the pre-commitment of over 70% as a testament to Frasers Tower’s being the top-of-mind choice for established organisations to grow their business,” says Christopher Tang, CEO of Frasers Centrepoint Singapore.
Located in the CBD and adjacent to the Tanjong Pagar MRT station, Frasers Tower is near the upcoming Greater Southern Waterfront area. When completed, Frasers Tower will have 663,000 sq ft in total net lettable area. The 38-storey office tower will have “community zones” called The Sky, The Terrace and The Park. Numazu, a sushi and sake bar from Japan, will be located at The Park.
Frasers Tower has a three-storey retail podium with a roof garden called The Oasis. It will have an eclectic mix of F&B outlets, from new-to-market concept Ocha Fresh Thai to perennial favourite Cedele. Cedele Group will also bring in its other F&B concepts such as Chiak, Cedele Bakery, Workspace Espresso and Grain Bowl.
The Oasis at Frasers Tower will feature a three-storey retail podium and greenery
Standing 235m tall, Frasers Tower will have floor plates of 20,000 to 22,000 sq ft that are regular shaped and free of interior columns for greater workspace efficiency. The development has received the BCA Green Mark Platinum Award, in recognition of its environmentally friendly features.
Paya Lebar Quarter — more than 50% leased
At PLQ’s topping-out ceremony of the first of three office towers, Lendlease said more than half of the total office space of close to a million sq ft is either leased, under final offer or in advanced negotiations. Prospective tenants include MNCs in the financial services, tech, infrastructure and real estate sectors and co-working providers as well as a premium gym, says Tony Lombardo, Lendlease CEO, Asia. “We hope to get a mix of local and international firms.”
The office towers at PLQ are expected to be completed and occupied from September this year. Average asking rents for the office space at PLQ range from $7 to $8 psf per month.
The topping-out ceremony of Paya Lebar Quarter’s first office tower was officiated by (from left) Paine; Fatimah Lateef, member of parliament for Marine Parade; Wong; and Lendlease’s Lombardo and Ng (Picture: Albert Chua/The Edge Singapore)
PLQ is focused on health and wellness too. There will be 100,000 sq ft of public landscaped green spaces, walking and cycling paths integrated into the wider Park Connector Network (PCN) and end-of-trip facilities including showers, towel service and secure lockers. To enable the future 10,000 workforce at the three office towers to stay connected at PLQ outside their offices, the landscaped green spaces will be Wi-Fi enabled.
Beyond office
The PLQ mall will have a total retail area of 340,000 sq ft, and will contain more than 200 shops with retail, entertainment and F&B offerings, including a range of al fresco dining options. Anchor tenants include a 22,000 sq ft NTUC Fairprice Finest supermarket and 15,000 sq ft Kopitiam food court. The mall is scheduled for completion later this year. More than 40% of the space has already been pre-committed — either leased or under final offer.
Park Place Residences, the residential element in PLQ, has residential towers with 429 units. The first phase of 215 units was launched last March and sold in a single day at an average of $1,801 psf, setting a new price benchmark for the area. The second phase is anticipated to be released in 1H2018.
Designing the future workplace
“The workplace of the future is going to be more mobile, flexible and wellness-centric,” says Ng Hsueh Ling, Lendlease chief investment officer for Asia. “To attract and retain the best talent, progressive companies will require sustainable modern workplaces that leverage technology to benefit its employees and enhance productivity.”
To address the growing demand for flexible spaces in Singapore, up to 15% of the available office space across PLQ’s three office towers will be allocated to co-working facilities designed to cater for both smaller space users such as start-ups and established small and medium-sized enterprises with larger headcount requirements. “This approach is designed to support the agility of businesses within a flexible co-working and business environment,” adds Richard Paine, PLQ managing director at Lendlease.
The bigger trend around health and wellness is related to companies wanting to increase staff productivity. “A couple of years ago, one of the key drivers was centred around cost and efficiency,” says JLL’s Archibold. “While efficiency is still a key consideration, attracting and retaining talent as well as staff productivity have become increasingly more important. To have high productivity, you need a happy, healthy workforce.”
Cushman & Wakefield’s Li agrees. “Companies are therefore willing to shell out extra for prime office space with plush fit-outs to secure top talent and boost their productivity,” she says. “These relocations are often expansionary, owing to the increasing trend of providing large breakout areas and leisure amenities, which enable their staff to rejuvenate and resume work with heightened focus and clarity.”
Transport links
Proximity to transport hubs is also becoming increasingly important to people. PLQ is linked to the Paya Lebar MRT interchange for the East- West and Circle Line, a 10-minute drive to the CBD and 15-minute drive to Changi Airport.
Frasers Centrepoint’s Frasers Tower is located just across the street from the entrance to the Tanjong Pagar MRT station on the East-West Line, which is just one stop from the Raffles Place MRT interchange station for the North- South and East-West Lines. Frasers Tower is also just a five- to seven-minute walk to the Telok Ayer MRT station on the Downtown Line.
Artist’s impression of Paya Lebar Quarter by Lendlease, with three office towers, three residential towers and a mall linked to the Paya Lebar MRT interchange station (Picture: Lendlease)
When the Thomson-East Coast Line is completed, Marina One will be linked to four MRT lines, says M+S’s Azman. Meanwhile, DUO is linked directly to the Bugis MRT Interchange for the Downtown and East-West Lines.
‘Shadow space’
People generally worry about the emerging “shadow space” in older office buildings when big tenants move to newer premises. According to C&W Research, there was 172,000 sq ft of shadow space in 2017, compared with an average of 112,000 sq ft from 2014 to 2016. “Nevertheless, we believe these older spaces will eventually be taken up by cost-conscious tenants who are unable to afford prime office rents,” says Li.
She sees these “backfill tenants” of older office spaces having a diversified profile, and include small finance, tech and professional services companies. Co-working operators are also a significant occupier, with Distrii taking up space in Republic Plaza and WeWork leasing three floors at 71 Robinson Road and Beach Centre respectively.
And as “shadow space” gets filled, along with the new office spaces, the outlook for the office market is expected to brighten over the next two years, says JLL’s Archibold.
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