Office rents on the rise as leasing activity picks up

By Douglas Dunkerley

/ Corporate Locations |

March 27, 2018 9:00 AM SGT

Prime office rents are advancing steadily at the moment, with many landlords becoming increasingly bullish about the medium term. Asking rates per month for top-grade prime office buildings now average $12.50 to $13 psf, with many of the premium buildings quoting the same rates. Bottom-line effective rates now range between $11 and $12 psf.

At Raffles Place, effective rents now average $8.50 to $10 psf, except at buildings such as 6 Battery Road, Ocean Financial Centre (OFC) and OUE Bayfront, where rents are closer to $12 psf. On the fringe of Raffles Place, rents range from $7.50 to $9.50 psf. Rates at Robinson Road/ Shenton Way are also firming up because there has been so much activity. Before, there was ample choice for premises leased around $6.50 psf, but now options range from $7 to $8.50 psf.

Tanjong Pagar has quite a wide spread of rates, with effective rents ranging from $6.50 to $8.50 psf. Beach Road-Marina Bay-Suntec has the widest spread of all locations, ranging from $6.50 to $6.80 psf effective for The Concourse and The Gateway to $12 psf for Centennial Tower and Millenia Tower. In the medium range, there is Suntec City, where rent is around $8.50 psf, and DUO Tower, where rent is from $9 psf, depending on size.

At Raffles Place, effective rents now average $8.50 to $10 psf, except at buildings such as 6 Battery Road, Ocean Financial Centre and OUE Bayfront, where rents are closer to $12 psf (Credit: Samuel Isaac Chua/The Edge Singapore)

Orchard Road sees very little fluctuation because leasing activity is limited. Again, the spread is quite wide in this location, ranging from $6.50 to $10 psf, because the age and type of buildings here vary a lot. Thomson Road-Novena is good value at between $7 and $8 psf.

New space taken up by large users

Singapore’s office market has been busy over the last six months, with many large space users committing to space, moving before supply becomes more restricted in 2019. The next wave of new supply will become available only in 2020/21, which has spurred demand in the current market.

All new developments are filling up quicker than anticipated. Some tenants are coming from unexpected sources and schemes such as Paya Lebar Quarter have been the beneficiaries. PLQ, which has an area of 883,000 sq ft, is currently 50% committed, some nine months before the targeted completion in 4Q2018. The big news is that SMRT Corp plans to relocate its headquarters from City Hall-North Bridge Road to PLQ and take up three floors totalling about 100,000 sq ft. A large multinational insurance company has committed to take up four floors in Tower 3, amounting to more than 120,000 sq ft. Tower 3 is therefore fully leased.

The other new developments continue to secure major tenants. Frasers Tower recently leased five floors (amounting to 125,000 sq ft) to Total Oil Asia-Pacific, as well as space to China Construction. Law firm Rajah & Tann, which currently occupies around 85,000 sq ft over 10 floors in MYP Centre, will be relocating to Marina One in 2019. Meanwhile, oil and gas giant Chevron has leased 73,000 sq ft at DUO Tower.

Co-working — expansion to continue

The expansion of co-working space operators has been quite phenomenal, and WeWork is fast becoming one of the largest occupiers of office space in Singapore. It is already the largest occupier of office space in London and is targeting to secure a portfolio of office space in Singapore of more than 300,000 sq ft within the next two years.

WeWork launched in Singapore only five months ago in Beach Centre, occupying 30,000 sq ft. Since then, it has secured 60,000 sq ft of space at 71 Robinson Road as well as committed to taking up two floors at Suntec Tower Five. It will also be taking up four floors totalling 30,000 sq ft at China Square Central; 34,000 sq ft spanning four floors at City House and 20,000 sq ft on a single floor at Mapletree Anson. WeWork has even pre-leased 40,000 sq ft at CapitaLand’s mixed-use commercial development Funan.

WeWork is planning to open one new location every three months over the next 1½ years. Each location will have a typical floor area of 30,000 sq ft. Its space at each location is usually taken up within three months of opening, which goes to show how successful this concept is.

WeWork at Beach Centre. The giant co-working space operator plans to open one new location every 12 weeks for the next 1½ years (Credit: Samuel Isaac Chua/The Edge Singapore)

Another co-working space operator, The Great Room, recently opened its new space at Centennial Tower, while Collision 8 has expanded, taking up two whole floors at 79 Anson Road in addition to their flagship at High Street Centre.

Landlords jump in

The proliferation of co-working space operators in Singapore is unprecedented. The rate of growth is set to continue and it seems that almost every other building has either a business centre or co-working premises, or sometimes both.

Some landlords are planning to provide such space directly within their own new schemes. For instance, PLQ is setting aside 15% of its office space to co-working/serviced offices. This would amount to around 100,000 sq ft.

With so many operators expanding into this market, when will it reach saturation point? Ultimately, some consolidation is expected, but for the moment, there seems to be no end to this phenomenon.

The amount of space these co-working space operators has committed to has had a significant effect on the overall take-up.

Limited supply of large office space at Raffles Place

Limited supply of large office spaces at Raffles Place has restricted leasing activity to small and medium-sized deals. CapitaGreen has attracted several big names, including Dow Jones (relocating from International Plaza) and M&G Investments (from Marina Bay Financial Centre).

New tenants at OUE Bayfront include oil and gas firm Novatek, American hedge fund BlueCrest Capital Management and hearing aid firm Amplifon Asia Pacific.

One Raffles Place has been particularly busy. At Tower 2, IT firm Cloudera leased 18,000 sq ft over two floors. Immigration@SG moved into Tower 1, along with Ramsay Health Care, which will be moving in from OFC.

At Marina Bay, activity is still strong. Asia Square recently saw new tenants, namely Resona Merchant Bank (formerly known as AFC Merchant Bank), My United Traders and consulting firm Booz Allen & Hamilton. Search engine optimisation specialist Ahrefs has leased space in Marina One (pictured, left) East Tower (Credit: Samuel Isaac Chua/The Edge Singapore)

New tenants to OFC include compliance and regulatory adviser Duff & Phelps (from Chevron House) as well as consulting firm Roland Berger (from OUE Bayfront). Republic Plaza is offering competitive deals and the latest tenant there is online travel specialist Sojern Asia.

At Marina Bay, activity is still strong. Asia Square recently saw new tenants, namely Resona Merchant Bank (formerly known as AFC Merchant Bank), My United Traders and consulting firm Booz Allen & Hamilton. SEO (search engine optimisation) tool providers Ahrefs has leased space at Marina One East Tower.

Attractive deals in secondary CBD office space

The Robinson Road-Shenton Way area has been offering some very attractive deals, which has tempted many tenants. Robinson 77 has leased space to Pirelli Asia (which moved from Keck Seng Tower) as well as one floor to communications consultant Watatawa and two floors to NTUC Link.

Property developer Singhaiyi Group, marine shipping company Grace Ocean and international game developer Wargaming Asia have moved into OUE Downtown 1. Meanwhile, OUE Downtown 2 has secured chemicals firm LSH Industrial Solutions Singapore as a new tenant. Vitamin and supplement brand Blackmores International has moved from OCBC Centre to SBF Centre, while Midea Electric Trading has leased a floor at 158 Cecil Street.

Tanjong Pagar is still the most competitive location and has seen healthy activity. French media firm Publicis Groupe is leasing one whole floor at Mapletree Anson. Collision 8 has expanded to lease two floors at 79 Anson Road totalling 22,000 sq ft.

Companies that have moved into Fuji Xerox Tower include Dutch dairy co-operative FrieslandCampina Singapore as well as Krones-Izumi, a beverage processing company. Melaka’s Kuala Linggi International Port oil facility and investment manager Essential Capital has moved into AXA Tower. Recent tenants at 78 Shenton Way include executive search firm Orion Consulting and building materials supplier USG Boral.

Relocations in CBD fringe area

Carlson Wagonlit, one of the larger tenants that needed to relocate from Hub Synergy Point, has moved into one whole floor at Parkview Square. E-payment firm Ingenico has expanded significantly at The Gateway. Other new tenants here include card printer Datacard and European distributor of paper and packaging solutions Antalis.

Suntec City is always busy. Co-working space operator UCommune (formerly known as Ur Work) has leased a floor at Tower 2. Other new tenants include energy trader Mabanaft, cybersecurity software firm Fortinet, investment management firm Infinite Demarco, media and events start-up Tech in Asia and software company MuleSoft.

High-angle shot of DUO Tower and Suntec City

Suntec City is always busy. Recent tenants include co-working space operator UCommune, energy trader Mabanaft and cybersecurity software firm Fortinet (Credit: Samuel Isaac Chua/The Edge Singapore)

Shadow space provides opportunity

While all the new developments are making most of the headline deals, the smart money could be looking at what shadow space is coming up. Shadow space is space that is often not on the open market but is available at a future date as a result of all those major relocations.

There will be quite a variety of buildings that will have substantial space becoming available as a result of their anchor tenant moving. Some of these buildings with smaller floor plates will suit tenants with smaller space requirements.

Substantial space could be available at One Marina Boulevard when Microsoft relocates to Frasers Tower in 2019. At OFC, several floors will be available in August as a result of Australia and New Zealand Banking Group’s right-sizing. MYP Centre could also have substantial space available from 2019 when Rajah & Tann moves to Marina One.

Market forecast

Over the next 12 months, we predict that prime office rates will increase 8% to 10%, owing to sustained demand and declining supply. Industries that continue to grow the strongest include IT, fintech, energy, private wealth management and, of course, co-working space operators.

The secondary market has not suffered as much as expected, and while some buildings see large unused space as a result of anchor tenants relocating, the occupancy rate in this category is still relatively high. Rental growth in this segment is likely to be more modest until supply tightens further. We still expect rates to firm around 5% to 7%.

The CBD fringe locations have seen less activity compared with other locations. We expect rates to be flat in this segment for the next 12 months, although supply is just beginning to show the first signs of contraction.

This article, written by Douglas Dunkerley, founder and director of specialists in office leasing Corporate Locations, appeared in EdgeProp Pullout, Issue 822 (March 19, 2018).