Offices see priorities shifting towards wellness, accessibility and facilities

/ EdgeProp Singapore |

September 8, 2023 10:00 AM SGT

Revolution spin studio opened in Frasers Tower in 2021 (Photo: Albert Chua/The Edge Singapore)

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A wave of new gyms has popped up in the CBD this year, such as class-based and strength training boutique gym Anarchy Club, with a 3,800 sq ft space on the fifth floor of 61 Robinson Road; and Sparkd, a 1,570 sq ft brain-body fitness gym on the same floor of the building.

In July, S30, a strength-training gym, opened on the second floor of Cecil Building at 137 Cecil Street, while Lab Studios opened a pilates, barre and yoga studio on the second floor of a shophouse on Stanley Street in February.

They joined Sphere Gym, a 4,800 sq ft training and recovery gym that opened at Cecil Building last year, along with Revolution spin studio, which debuted at Frasers Tower in 2021.

“Fitness and wellness facilities are becoming more popular, and that’s to do with a healthy lifestyle,” says Luke Moffat, regional managing director and head of CBRE advisory and transaction services, Asia Pacific. “Features like gyms, end-of-trip facilities, nursery rooms, massage rooms, good F&B or good-quality air filters are the sort of things you need to have for the well-being of the staff.”

Moffat: The premium would be more significant if one compared a green-certified Grade-A building with an older Grade-B building that is not green-certified (Photo: Samuel Isaac Chua/EdgeProp Singapore)

CBRE’s 2023 Asia Pacific Office Occupier Sentiment Survey, which was launched in June, found that office occupiers prioritise accessibility to public transport (71%), carpark (50%), sustainable building features and operations (48%), shared meeting space (45%), flexible office space (36%), F&B options on site (62%) and fitness facilities (45%).

Wellness has an even more significant impact than sustainability, notes Moffat. However, a building with a high rating in terms of wellness and sustainability does not just benefit the occupiers, but also the investors who enter the scene at a later stage and want to buy the property. “When a property has a high ESG [environmental, social and governance] rating in terms of wellness, energy efficiency and sustainability, it is much more saleable,” he says.

Source: CBRE’s 2023 Asia Pacific Office Occupier Sentiment Survey

Return to office

This year’s survey was consistent with last year’s, with 69% of office workers placing greater importance on their work environment than they did pre-pandemic, a trend driving demand for higher-quality office space and future-proofed office buildings.

CBRE’s survey also showed an increasing number of companies aiming for their staff to be mainly at the office, with 32% stating their intention to do so in 2023, up from 24% in 2022.

“However, hybrid working, in one form or another, is here to stay,” says Moffat. “It gives employees some flexibility.”

Asia Pacific continues to lead the US and Europe in the return to the office. As of March 2023, Asia Pacific’s average office utilisation rate was about 65%, compared to just 50% in the other two major regions.

Source: CBRE’s 2023 Asia Pacific Office Occupier Sentiment Survey

Green rental premium

Although demand for ESG-certified office buildings is substantial, few occupiers are willing to pay a rental premium for such properties, notes CBRE. Fewer than 25% of survey respondents stated they would be willing to pay higher rents to lease green space.

Of those willing to pay higher rent, the premium they would be willing to pay is less than 5%. Only 10% are willing to pay a premium of 10% or higher. The relatively low green rental premium is partly due to the high rate of green building adoption in Asia Pacific, where 43% of Grade-A office buildings were green-certified as of 2022, says CBRE.

However, the premium would be more significant if one compared a green-certified Grade-A building with an older Grade-B building that is not green-certified, says Moffat. “It goes beyond the green factor,” he adds. “An old building which has not been renovated, with older finishes, older bathrooms, no amenities and no views will take longer to lease out as tenants coming into the market will take up space at new green buildings with better views, higher specifications and more amenities.”

Hence, Moffat says, owners will invest in retrofitting their ageing buildings to bring them on a par with the Grade-A office buildings today.

Vacancy rates for Category 1 buildings declined to 9.2% in 2Q2023, matching vacancy levels in 2Q2020 when the pandemic had just begun (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Tight market conditions prop up rents

In Singapore, tight market conditions continued to hold up the office market. Based on URA statistics, office rents in the Central Region have increased for the seventh consecutive quarter since 3Q2021. The URA office rental index increased by 2.3% q-o-q in 2Q2023, a moderation in the pace of rental growth from the increase of 5.1% q-o-q in 1Q2023, notes CBRE.

The pace of rental increase for prime buildings in Singapore’s Downtown Core and Orchard planning areas “has surpassed expectations” based on median rental contracts signed, according to CBRE. Median rental (by contract date) in Category 1 (a proxy for prime CBD) office space accelerated by 6.7% q-o-q in 2Q2023, from 0.2% q-o-q the previous quarter.

CBRE attributes the higher pace of rental increase in 2Q2023 to the prevailing tight vacancy levels in prime office buildings. Vacancy rates for Category 1 buildings declined to 9.2% in 2Q2023, matching vacancy levels in 2Q2020 when the pandemic had just begun.

New buildings will take longer to fill up as office occupiers retain a prudent attitude towards portfolio planning amid the challenging macroeconomic environment (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Expansionary sentiment subdued

Selected occupiers favoured renewing their leases at higher rental rates rather than pursuing relocation alternatives, as the current challenging market conditions are exacerbated by high fit-out and funding costs, observes CBRE. In addition, more occupiers are now focusing on space optimisation, with some right-sizing to a more efficient footprint. These reasons led to a higher monthly rental rate in 2Q2023.

Rents, however, may come under pressure in 2H2023 due to the addition of a significant prime new commercial development, along with elevated levels of shadow space, notes CBRE.

The new project is IOI Properties Group’s IOI Central Boulevard Towers, which topped out on Aug 28. The Grade-A office development, with 1.26 million sq ft of office space and a 30,000 sq ft retail and F&B space at Marina Bay, is expected to receive its temporary occupation permit in 1Q2024. To date, about 40% of IOI Central Boulevard Towers’ net lettable area has been committed, with another 20% in advanced stages of negotiation.

“When IOI Central Boulevard Towers opens next year, the vacancy rate could increase slightly,” notes Moffat.

Flight to new-build and flight to green will remain prominent trends, says CBRE in its 2023 Asia Pacific Real Estate Market Outlook Mid-Year Review released in August. With Asia Pacific regional vacancy rising to a 20-year high of 18% in 1H2023 and set to remain elevated for the remainder of the year, occupiers will have ample upgrading options, it adds.

However, new buildings will take longer to fill up as office occupiers retain a prudent attitude towards portfolio planning amid the challenging macroeconomic environment. “Although flight to quality and a focus on green buildings remain key trends, expansionary sentiment has been subdued,” notes the report.

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