Office market ins and outs
By Douglas Dunkerley
/ Corporate Locations |
The Singapore office leasing market has remained challenging, although it is by no means inactive despite fickle demand. There has been a flurry of activity involving large-space users committing to space in the new schemes, but the net absorption has been minimal. Some of the big moves came as no surprise, with Bank of Tokyo Mitsubishi moving from Republic Plaza to take up 150,000 sq ft at Marina One; Mitsui and Co moving from 80 Robinson Road and committing to 80,000 sq ft at Asia Square; and PwC relocating from PWC Building to to a 180,000 sq ft space at Marina One East Tower. All three companies have been in their current buildings for over 15 years. Word on the street is that Bank Julius Baer & Co is moving from Asia Square and will be taking up 100,000 sq ft at Marina One.
The time is ripe for many other large-space users to upgrade or right-size, and there are quite a few players in this category that will be aware that the opportunities to move into new schemes after 2018 will be more limited.
Impact of major voids from relocations
Rental rates — which are already 20% off their peak in March 2015 — continue to soften, but at a slower pace than seen in 4Q2015 and 1Q2016. The leasing market continues to be fragile, with many landlords managing to convince their tenants to stay by lowering renewal rates still further. The full impact of the major voids that will appear next year as a result of relocations has not filtered through yet, but will increase in severity come 2017.
The most expensive office buildings are now commanding effective monthly rates of $10.50 to $11 psf for the smaller units. Large-space users that are focusing on the new schemes are targeting average effective rents of $8 to $9 psf. The Tanjong Pagar area still offers the best value for money, with many quality options available at between $6.25 and $7.50 psf.
Demand over the last six months has been patchy, with various industries seeing mixed fortunes, but the new office schemes continue to attract the most interest. The top end of the market in general has performed surprisingly well, with healthy activity in the prime districts. The global economic slowdown has not led to any mass exodus of companies to lower-cost centres, although the oil and gas (O&G) sector has suffered more than most.
Some large-space users in this field have moved operations to Kuala Lumpur. They include PGS (from Triple One Somerset), Subsea 7 (from PSA Building) and SapuraKencana Drilling (from Keppel Towers).
The Tanjong Pagar and Shenton Way area remains one of the most competitive CBD locations
Surge in co-working spaces
An interesting development in the office market has been the surge in new business centres and co-working spaces. Some landlords are developing their own business centres. They include Keppel Land, which has launched Workspace at Keppel Towers, and OUE Downtown, which plans to provide 20,000 sq ft for such use.
Co-working space operator Collective Works has expanded to add a whole floor at Capital Tower (20,000 sq ft, in a joint venture with CapitaLand). They also plan to open another large centre elsewhere in 1Q2017. Collision 8 has opened a workspace centre on High Street and The Great Room has taken up 15,000 sq ft at One George Street.
These co-working centres are not just restricted to conventional office space. The Executive Centre is opening a centre in the penthouse of three combined shophouses on Circular Road, Boat Quay. Some operators even lease entire buildings — Regus’ Spaces City Hall will be taking up the entire Cosmic Insurance Building at 410 North Bridge Road.
Raffles Place, New Downtown continue to be popular
Raffles Place is still a popular location. New tenants at One Raffles Place include corporate services consultant Vistra Group, O&G recruitment consultants Airswift Holdings Ltd and Greenhill Cogent, an advisory firm that focuses on the secondary market for alternative assets. Republic Plaza I & II have been attracting new tenants such as RHT Corporate Advisory, Korean Registry of Shipping and global derivatives exchange organisation Eurex Exchange. UOB Plaza has leased space to CSSC Energy, Winson Oil and Symphony Financial.
Special Metals Pacific is moving from Clifford Centre to Singapore Land Tower and accounting firm Foo Kon Tan has moved into Clifford Centre, leasing some 13,000 sq ft. Private-equity firm Warburg Pincus has moved into OUE Bayfront and other new tenants here include TRI Energy and Qiao Jian Corp. Fund management company Squarepoint Operations and automotive firm Jaguar/Land Rover have taken space in CapitaGreen.
The new Downtown at Marina Bay has been another sought-after location. Mitsui & Co is not the only one that recently moved to Asia Square. Corporate and financial services provider Citco Gateway, luxury sports car manufacturer Aston Martin Lagonda, investment holding company Leader Energy, China Fortune Land Development’s CFLD Investment and Spanish natural gas utilities company Gas Natural Fenosa are all new tenants at Asia Square.
A wide variety of smaller units at Asia Square that were given up by Lloyds of London were quickly snapped up by companies such as alternative investment management firm PAG Investment Advisors; ex-Barclays trust unit Zedra Trust Co; tech provider for the utilities and energy industry Trilliant Holdings Inc; research agency Milken Institute Asia; and Japan-based The Iyo Bank. Marina Bay Financial Centre has also been in demand, with Cathay United Bank, Netflix, NN Investment, Linde Gas Asia and Rongsheng Petrochemical moving in. The leasing of Marina One is now in full swing and already over 500,000 sq ft in this scheme have been committed, with Daiwa Singapore, PwC and Bank of Tokyo Mitsubishi being the first major tenants.
Tanjong Pagar, Shenton Way most competitive locations
The Tanjong Pagar and Shenton Way area remains one of the most competitive CBD locations and Guoco Tower offers the best combination of quality and value for money. New tenants to secure space in this scheme include IT group Amadeus — 36,000 sq ft (from Parkview Square); analytics software provider SAS Institute (moving from Twenty Anson); insurance giant Prudential Assurance, which is said to be leasing 90,000 sq ft in the development; and hotel booking company Agoda, which is lined up to take up 22,000 sq ft. Hubspot and Taiyo International have taken space in Mapletree Anson and Twenty Anson respectively. Pacific International Line’s Singapore container line operator Mariana Shipping has taken a floor at GB Building. NYSE-listed application network and security provider A10 Networks has leased space at Tokio Marine Centre, while fastening and architectural products manufacturer YKK Asia Pacific has leased a floor at OUE Downtown 1.
Beyond CBD core
Orchard Road has been relatively quiet because of a lack of supply. Halycon Agri Commodities has moved into Haw Par Centre from Raffles City Tower, and Broad Peak Investment Advisors into Visioncrest Commercial on Penang Road.
Beach Road/Marina Bay has also been relatively subdued. Edelman Public Relations has leased space at Beach Centre. PV Oil has moved from Winsland House on Killiney Road to South Beach Tower. New tenants at Suntec City include marine logistics company Sinochem Shipping, bunker supplier Ocean Energy and wealth management group Thirdrock ISSEA Advisers. Many of Suntec’s tenants have also expanded within the scheme.
CBD fringe
Just outside the CBD, the Harbourfront and Alexandra Road neighbourhood has been the most active. Coca-Cola has leased 13,000 sq ft at Keppel Bay Tower and Huadian Natural Gas has also leased space in the same building. Fragrance Empire Building (former NOL Building) has proved popular with logistics companies, and new tenants here include Air France/KLM Cargo, APL Logistics, Star Concord and engineering design firm BMT Asia.
The Singapore office leasing market has remained challenging, although it is by no means inactive despite fickle demand. There has been a flurry of activity involving large-space users committing to space in the new schemes, but the net absorption has been minimal. Some of the big moves came as no surprise, with Bank of Tokyo Mitsubishi moving from Republic Plaza to take up 150,000 sq ft at Marina One; Mitsui and Co moving from 80 Robinson Road and committing to 80,000 sq ft at Asia Square; and PwC relocating from PWC Building to to a 180,000 sq ft space at Marina One East Tower. All three companies have been in their current buildings for over 15 years. Word on the street is that Bank Julius Baer & Co is moving from Asia Square and will be taking up 100,000 sq ft at Marina One.
The time is ripe for many other large-space users to upgrade or right-size, and there are quite a few players in this category that will be aware that the opportunities to move into new schemes after 2018 will be more limited.
Impact of major voids from relocations
Rental rates — which are already 20% off their peak in March 2015 — continue to soften, but at a slower pace than seen in 4Q2015 and 1Q2016. The leasing market continues to be fragile, with many landlords managing to convince their tenants to stay by lowering renewal rates still further. The full impact of the major voids that will appear next year as a result of relocations has not filtered through yet, but will increase in severity come 2017.
The most expensive office buildings are now commanding effective monthly rates of $10.50 to $11 psf for the smaller units. Large-space users that are focusing on the new schemes are targeting average effective rents of $8 to $9 psf. The Tanjong Pagar area still offers the best value for money, with many quality options available at between $6.25 and $7.50 psf.
Demand over the last six months has been patchy, with various industries seeing mixed fortunes, but the new office schemes continue to attract the most interest. The top end of the market in general has performed surprisingly well, with healthy activity in the prime districts. The global economic slowdown has not led to any mass exodus of companies to lower-cost centres, although the oil and gas (O&G) sector has suffered more than most.
Some large-space users in this field have moved operations to Kuala Lumpur. They include PGS (from Triple One Somerset), Subsea 7 (from PSA Building) and SapuraKencana Drilling (from Keppel Towers).
Surge in co-working spaces
An interesting development in the office market has been the surge in new business centres and co-working spaces. Some landlords are developing their own business centres. They include Keppel Land, which has launched Workspace at Keppel Towers, and OUE Downtown, which plans to provide 20,000 sq ft for such use.
Co-working space operator Collective Works has expanded to add a whole floor at Capital Tower (20,000 sq ft, in a joint venture with CapitaLand). They also plan to open another large centre elsewhere in 1Q2017. Collision 8 has opened a workspace centre on High Street and The Great Room has taken up 15,000 sq ft at One George Street.
These co-working centres are not just restricted to conventional office space. The Executive Centre is opening a centre in the penthouse of three combined shophouses on Circular Road, Boat Quay. Some operators even lease entire buildings — Regus’ Spaces City Hall will be taking up the entire Cosmic Insurance Building at 410 North Bridge Road.
Raffles Place, New Downtown continue to be popular
Raffles Place is still a popular location. New tenants at One Raffles Place include corporate services consultant Vistra Group, O&G recruitment consultants Airswift Holdings Ltd and Greenhill Cogent, an advisory firm that focuses on the secondary market for alternative assets. Republic Plaza I & II have been attracting new tenants such as RHT Corporate Advisory, Korean Registry of Shipping and global derivatives exchange organisation Eurex Exchange. UOB Plaza has leased space to CSSC Energy, Winson Oil and Symphony Financial.
Special Metals Pacific is moving from Clifford Centre to Singapore Land Tower and accounting firm Foo Kon Tan has moved into Clifford Centre, leasing some 13,000 sq ft. Private-equity firm Warburg Pincus has moved into OUE Bayfront and other new tenants here include TRI Energy and Qiao Jian Corp. Fund management company Squarepoint Operations and automotive firm Jaguar/Land Rover have taken space in CapitaGreen.
The new Downtown at Marina Bay has been another sought-after location. Mitsui & Co is not the only one that recently moved to Asia Square. Corporate and financial services provider Citco Gateway, luxury sports car manufacturer Aston Martin Lagonda, investment holding company Leader Energy, China Fortune Land Development’s CFLD Investment and Spanish natural gas utilities company Gas Natural Fenosa are all new tenants at Asia Square.
A wide variety of smaller units at Asia Square that were given up by Lloyds of London were quickly snapped up by companies such as alternative investment management firm PAG Investment Advisors; ex-Barclays trust unit Zedra Trust Co; tech provider for the utilities and energy industry Trilliant Holdings Inc; research agency Milken Institute Asia; and Japan-based The Iyo Bank. Marina Bay Financial Centre has also been in demand, with Cathay United Bank, Netflix, NN Investment, Linde Gas Asia and Rongsheng Petrochemical moving in. The leasing of Marina One is now in full swing and already over 500,000 sq ft in this scheme have been committed, with Daiwa Singapore, PwC and Bank of Tokyo Mitsubishi being the first major tenants.
Tanjong Pagar, Shenton Way most competitive locations
The Tanjong Pagar and Shenton Way area remains one of the most competitive CBD locations and Guoco Tower offers the best combination of quality and value for money. New tenants to secure space in this scheme include IT group Amadeus — 36,000 sq ft (from Parkview Square); analytics software provider SAS Institute (moving from Twenty Anson); insurance giant Prudential Assurance, which is said to be leasing 90,000 sq ft in the development; and hotel booking company Agoda, which is lined up to take up 22,000 sq ft. Hubspot and Taiyo International have taken space in Mapletree Anson and Twenty Anson respectively. Pacific International Line’s Singapore container line operator Mariana Shipping has taken a floor at GB Building. NYSE-listed application network and security provider A10 Networks has leased space at Tokio Marine Centre, while fastening and architectural products manufacturer YKK Asia Pacific has leased a floor at OUE Downtown 1.
Guoco Tower offers the best combination of quality and value
for money in the Tanjong Pagar and Shenton Way area
Beyond CBD core
Orchard Road has been relatively quiet because of a lack of supply. Halycon Agri Commodities has moved into Haw Par Centre from Raffles City Tower, and Broad Peak Investment Advisors into Visioncrest Commercial on Penang Road.
Beach Road/Marina Bay has also been relatively subdued. Edelman Public Relations has leased space at Beach Centre. PV Oil has moved from Winsland House on Killiney Road to South Beach Tower. New tenants at Suntec City include marine logistics company Sinochem Shipping, bunker supplier Ocean Energy and wealth management group Thirdrock ISSEA Advisers. Many of Suntec’s tenants have also expanded within the scheme.
CBD fringe
Just outside the CBD, the Harbourfront and Alexandra Road neighbourhood has been the most active. Coca-Cola has leased 13,000 sq ft at Keppel Bay Tower and Huadian Natural Gas has also leased space in the same building. Fragrance Empire Building (former NOL Building) has proved popular with logistics companies, and new tenants here include Air France/KLM Cargo, APL Logistics, Star Concord and engineering design firm BMT Asia.
Supply
Supply continues to be very healthy, which means ample choice in all locations for tenants. Most of the shadow space has either been leased out or, where leases have expired, is no longer available for sub-let. Activity has picked up at new schemes, and there is still a wide variety of units to choose from. However, Marina One is more suited for large-space users who require more than 9,000 sq ft, whereas Guoco Tower can be more flexible and cater for sizes from 3,000 sq ft upwards. At DUO Tower on Beach Road, rental rates have been adjusted recently to be more competitive and that should attract renewed interest.
Five Shenton Way will be coming on stream in 1Q2017
In Raffles Place, the buildings with the widest choice of units include One Raffles Place Towers One and Two, Bank of Singapore Centre at 63 Market Street, 20 Collyer Quay (formerly Tung Centre) and One George Street. Next year, significant space will become available at Republic Plaza.
In the New Downtown area, MBFC Towers 1 and 2 are full and there is only limited space at Tower 3. One Raffles Quay North Tower is nearly full, but South Tower still has the space formerly occupied by the Royal Bank of Scotland. There is plenty of space available at Asia Square and, of course, Marina One will soon be ready to take in tenants.
In the Shenton Way/Robinson Road neighbourhood, OUE Downtown 2 and Robinson 77 have the most space available. Next year, 80 Robinson Road will have a large void to fill after Mitsui & Co moves out, and Five Shenton Way will be coming on stream in 1Q2017.
Five Shenton Way will be coming on stream in 1Q2017
In Tanjong Pagar, AXA Tower still has a substantial amount of space available. Elsewhere, Fuji Xerox Tower has a large variety of small units available, but it is Keppel Towers and Tower Fifteen that have the most space available, although their long-term future remains uncertain.
In the Beach Road/Marina Bay/City area, Suntec City is enjoying a relatively high occupancy rate, and Millennia Tower is nearly full. However, there is significant space in Centennial Tower; and on Beach Road, a variety of buildings with good space are available, including Beach Centre, The Concourse and The Gateway East, all of which will be competing with DUO Tower in this district.
Outlook
Rental rates are expected to soften for at least another 18 months and may begin to bottom out at the end of 2017/early 2018. Within the next two years, there will still be more high-quality schemes coming on stream, including Frasers Tower (about 690,000 sq ft) and Robinson Tower (about 195,000 sq ft) within the CBD, as well as Paya Lebar Quarter (close to one million sq ft) at Paya Lebar Central, outside the CBD. The upcoming supply will ensure that the Singapore office market remain very competitive compared with other financial hubs in the region, and therefore stay attractive to new enterprises as well as those looking to expand their regional offices here.
Over the next 12 months, we expect rates to fall by around 10%. But the rate of decline could begin to slow by end-2017.
Douglas Dunkerley is the founder and group managing director of Corporate Locations, specialists in office leasing
This article appeared in The Edge Property Pullout, Issue 745 (Sep 12, 2016) of The Edge Singapore.
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