CBD office tenants shifting to city-fringe locations: Colliers

/ EdgeProp Singapore |

October 30, 2019 4:16 PM SGT

SINGAPORE (EDGEPROP) - CBD office-occupiers in Singapore are shifting to affordable Grade-A office spaces in city-fringe locations as companies chase greater affordability and value. According to the “City Fringe Gems” research paper by Colliers International, the average Grade-A office rent in city-fringe locations was $7.90 psf per month (pm) in 3Q2019, which is lower than the average $10.08 psf pm in the CBD over the same period.

City fringe Grade-A office rents have also climbed 18.4% between 2Q2017 and 3Q2019, driven by “benign demand-supply dynamics”, says the report. The rental gap between city-fringe locations and the CBD has widened from 8% in 2011 to 22% today.

Tricia Song, head of research for Singapore at Colliers International, says: “Business locations in the city fringe have strengthened their value proposition considerably in the past years with new builds as well as ongoing urban regeneration efforts undertaken by the government and developers. These locations offer quality business space with reasonable rents, good infrastructure, and are closer to sizable residential enclaves, which provide a ready talent pool for occupiers.”

Colliers has identified Alexandra, Harbourfront, and Paya Lebar as key precincts that have reshaped Singapore’s city-fringe office market, and offer optimal quality and price mix for occupiers.

In Alexandria, rejuvenation of the 13.5ha business precinct includes the integrated business hub Mapletree Business City that was completed in 2016. Together with PSA Building, Alexandra Technopark, and Alexandra Point, the precinct offers over 5 million sq ft of business space.

At Harbourfront, refurbished buildings include HarbourFront Centre (formerly World Trade Centre) and HarbourFront Tower Two (formerly Singapore Cable Car Tower). Other redevelopments include HarbourFront Tower One, Keppel Bay Tower, and the Built-to-Suit Bank of America Merrill Lynch HarbourFront. The entire precinct offers more than 1.6 million sq ft of nett lettable office space.

Paya Lebar is a top-down decentralisation effort, designated as a new commercial hub with office and retail developments under the 2008 Draft Master Plan. After the opening of Paya Lebar Square in 2015 and Paya Lebar Quarter this year, together with a redeveloped Singapore Post Centre, the entire precinct offers more than 1.6 million sq ft of net lettable office space.

According to Song, Paya Lebar has the most to offer in terms of accessibility and quality of office stock, despite relatively higher rents than the other two locations. In the long term, Alexandra and HarbourFront will likely benefit from accessibility to the last phase of the Circle Line and the planned Greater Southern Waterfront.

Paya Lebar has the most to offer in terms of accessibility and quality of office stock, despite relatively higher rents (Picture: Lendlease)

On the investment front, city fringe Grade-A offices offered capitalisation rates of 3.7–4% in 3Q2019, compared to 3.1–3.5% for CBD Grade-A offices during the same period. City-fringe Grade-A rents are expected to record stable rental growth of 2.4% compound annual growth rate (CAGR) from 2019 to 2023 as supply remains tight. Average capital values rose 16.5% to $1,733 psf between 2Q2017 and 3Q2019, driven by robust transaction volumes for the overall office market.

The office capital market is expected to ride the favourable interest rate outlook and large capital allocation into Singapore. Developers and investors should review their portfolios and diversify into selective city-fringe area with rental growth or capital appreciation potential, says Jerome Wright, director of capital markets at Colliers.

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