Major Japanese bank in advanced talks for space in Marina One

DESPITE a generally quiet leasing market, there has been buzz about two big transactions involving major players.

BT understands that The Bank of Tokyo-Mitsubishi UFJ (BTMU) is in advanced discussions to lease about 140,000 square feet of office space at Marina One. It will be moving out of Republic Plaza, where it is the anchor tenant and also one of the oldest in the building, occupying about 150,000 sq ft.

In a separate deal, this one outside the CBD, Johnson & Johnson (J&J) is said to be finalising a lease for at least 170,000 sq ft of business park space at Ascent in Science Park 1 which will be completing this quarter. The lease is understood to be a long-term commitment of 10 years.

The multinational corporation (MNC) is currently based at The Strategy in the International Business Park in Jurong East, where it occupies about 130,000 sq ft. When contacted by BT, a spokesman for Mapletree Industrial Trust, which owns The Strategy, said: “We have not received any notification from Johnson & Johnson on their lease, which expires in 2018.”

However, an analyst said that J&J may have an option to pre-terminate its lease by serving a requisite notice period.

Market watchers suggest that J&J could be paying a gross effective monthly rental of about S$5-S$6 per square foot (psf) at Ascent on a blended basis for the duration of the 10-year lease, compared with about S$3.50-S$3.80 psf it would pay had it chosen to renew its lease at The Strategy. But for the company, the relocation could represent a flight-to-quality to a newer development, with an expansion built in.

“If they remained in The Strategy, there is limited expansion pathway for them,” said a market watcher.

Developed by Ascendas Land Singapore, Ascent is a seven-storey building with a total net lettable area of 490,687 sq ft, of which about 90 per cent is business park space. It is located near Kent Ridge MRT Station and Kent Ridge Park. Ascendas declined to comment on the precommitment rate for the development or about J&J’s lease. The MNC too was mum when approached by BT as was Colliers International, which is understood to have advised J&J.

Back in the CBD, BTMU could be one of the first major office signings at M+S’s Marina One project, say market watchers. When contacted, the bank declined to say where it will be relocating to, but confirmed that it would not renew its lease at Republic Plaza which is due in mid-2017.

“. . . we have reviewed our options and decided to move out of the current premises to a new building. This . . . made the most viable sense for the bank in the longer term – with regards to efficiency of floor plates as well as convenience of location,” said Jenny Lim, BTMU’s head of corporate communications for Asia and Oceania. “We are in the midst of final discussions with the new landlord and thus unable to disclose more details of our move as yet.”

The relocation to a new building involves BTMU, the commercial bank entity under Japan’s Mitsubishi UFJ Financial Group (MUFG) that is currently housed at Republic Plaza. BTMU occupies 13 floors adding up to around 150,000 sq ft at its current premises.

The bank is looking at taking up close to 140,000 sq ft at the new building, and about 1,500 staff will be involved in the move.

While the space it is taking up in the new location is less than what it occupies at Republic Plaza, it does not amount to a contraction of the bank’s footprint or business in Singapore, said Ms Lim. Rather, she said, it reflects the more efficient space usage at the new development, due to bigger floor plates

BT understands that Mitsubishi UFJ Securities, another entity of MUFG and which is also located in Republic Plaza, may join BTMU in migrating to Marina One.

In all, the Marina One development will have 1.88 million sq ft of offices on levels 5 to 30 in two towers. Office floors in the East Tower will range from 35,000 to 43,000 sq ft, while those in West Tower will be 32,000-42,000 sq ft. The two towers will be connected on levels 28 and 29, creating 100,000 sq ft per floor.

It is thought that BTMU could be looking at taking four floors at Marina One. At Republic Plaza – which was completed in early 1996 – floor plates range from around 8,000 to 12,000 sq ft. JLL, which is understood to be advising BTMU, declined to comment.

A spokesman for M+S declined to comment on pre-leasing activity at Marina One.

But industry insiders told BT that gross effective monthly rents for big office occupiers at Marina One would probably be around S$7-S$8 psf. Had BTMU decided to renew its lease at Republic Plaza, it could have expected to pay above S$7 psf, they added.

BTMU’s decision is the latest in a game of musical chairs involving office tenants which began last year when precommitments were inked at Duo along Beach Road (also a project by M+S) and Guoco Tower in Tanjong Pagar – with tenants moving from older-generation premises.

At Duo, Abott has signed a lease for about 100,000 sq ft; it will be consolidating and coming out of three locations – HarbourFront Centre in the Telok Blangah area, VisionCrest along Penang Road and Gateway in Beach Road. MasterCard has inked a 70,000-sq-ft lease at Duo, and is expected to exit Gateway.

Meanwhile, Guoco Tower has clinched Dnb Asia, a shipping and offshore financing solutions provider that is currently housed at the nearby Axa Tower, for a space of about 15,000 sq ft.

“The musical chairs trend already started to emerge last year, although most of the actual vacating of space will happen in 2017 and possibly 2018 because these tenants are precommitting to space in new buildings that will be completed in the second half of this year and early 2017,” said Michael Tay, executive director of office services at CBRE.

Besides attractive rental terms offered by landlords of new developments to select tenants amid the competitive leasing environment, the key drivers for this migration to newer office developments are a flight-to-quality and, in some cases, occupiers consolidating from a few locations.

“There are also tenants that, due to expansion within a building over the years, may have their operations spread in different zones in the building – which is not ideal from an operational standpoint,” noted Mr Tay.

Analysts said that office leasing deals that are brewing are mostly expected to be renewals or relocations, rather than involving new entrants and expansions – translating to little growth, if any, in net demand for islandwide office space. Some foreign banks and tenants in the resources sector are in retreat and the overall weak global economic outlook is also denting office demand. This, coupled with the surge in new office completions over the next year or so, will continue to create downward pressure on rentals.

On a positive note, there are signs that some big occupiers are prepared to move to higher-quality new buildings, incurring capital expenditure – provided the rental level is right, said Mr Tay.

All eyes are now on the the likes of ING, which is also in Republic Plaza, to see if it stays put or moves to a new development. In Centennial Tower, McKinsey & Co is mulling over whether to stay or move.

The World Bank, which is said to occupy about 16,000 sq ft at Marina Bay Financial Centre 2, is being courted by several landlords. The bank is understood to be looking for a bigger space of about 30,000-50,000 sq ft either in the same building or a new project.

Savills executive director (commercial leasing) Marcus Loo said: “There is still keen leasing interest in the market despite the economic uncertainty. However, there is a general sense of disconnect between landlords and tenants’ expectations on rental levels. As a result, decision-making by tenants is protracted.”

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