Rental volatility and the obsolescence of buildings are two of the bigger risks that occupiers will have to consider when thinking about leasing office space in Singapore, but there are viable alternatives outside the city. This is according to the findings from Cushman & Wakefield’s Prepped Cities Index Report 2018.
Talent and rental stability are two areas in which Singapore saw lower scores compared to other cities in the region. Singapore is challenged by low population growth, and a gap in companies being able to introduce market-leading workplace strategies to retain and attract the best available workforce, compared to other cities like Melbourne and Shanghai.
Singapore’s core central business district (CBD) office supply shortage and the resultant rental growth present challenges for occupiers as it limits companies’ ability to hedge against sudden rises in rents, thus impacting company performance. Closely tied to rental volatility is the obsolescence of developments outside the central business district.
In the top three submarkets of City Hall, Marina Centre and Orchard Road, the average age of the office buildings in these locations is 20 years. At 20 years or more, there is a high probability that landlords will undertake some form of asset enhancement if not tear it down to redevelop. Occupiers will then have to relocate, disrupting their operations. Furthermore, as these older buildings are taken off the market, the pressure on rents will intensify upwards, leading to higher rental volatility.
Leasing Opportunities in Fringe Areas
In what is clearly a landlord’s market, one option for Singaporean occupiers is to look at the regional centres such as Jurong and Paya Lebar. These areas have newer buildings and better design standards. The opportunities for occupiers increase outside the city fringe locations. Over the longer term, the supply of office stock in the decentralised areas will increase a whopping 178%, presenting more opportunities for occupiers compared to the projected 14% increase in core CBD stock.
This huge discrepancy between the stock in CBD and decentralised areas will result in a clear delineation between a core CBD market and a decentralised one. The rental gap between the two will lead to a permanent wedge between renting in a core CBD space and a decentralised location.
Here are some of the fringe areas where occupiers can find leasing opportunities:
- Paya Lebar Quarter – set to be completed by Q4 2018. Half the space is available.
- Woodlands Regional Centre – by 2021, the centre will be formed and Woods Square, a major commercial development, will be made available. Woodlands is positioned as the gateway for Southeast Asia (SEA) and a link to Malaysia. This will be particularly attractive to companies with a strong SEA/ASEAN focus.
- Punggol Digital District – by 2023, the district will offer 0.7 million square feet (sf) of office space and is projected to generate 28,000 jobs, easing the strain on infrastructure supporting the traditional areas of business including the CBD and the city fringe.
- Labrador Commercial Development – scheduled to be ready in 2025 with 0.8 million sf of office space.
For many occupiers used to operating out of the CBD, it appears to be a painful decision but the perception will change in a few years as more viable options will come on the market. Occupiers will be encouraged further as the rail density increases to a level that’s higher than London.
Google bit the bullet in 2015 and moved out of Asia Square Tower in Singapore to Mapletree Business City II. That relocation exercise saved them $1.4 million dollars in occupancy cost per month. More occupiers might be encouraged to follow suit as rents in the CBD and city fringe continue to escalate.