Prime office rents in CBD expected to rise by 10%

Property analysts are expecting prime office rents in the central business district (CBD) to rise by 10 per cent over the next 12 to 18 months.

The increase will be driven largely by demand for Grade A office buildings in the CBD.

But if rents there spike significantly, analysts warn that some tenants could move to the suburban areas.

Market watchers have said that rent at Grade A office buildings in the CBD area has gone up by about 7 per cent in the past year.

But if it continues to rise further, cost-conscious tenants may start thinking about moving out.

Donald Han, managing director of Chestertons, said: “The increase in suburban rentals would probably be much less than that of A Grade rentals in the CBD, so we would expect there would potentially be an attractive proposition for tenants to relocate some of the operations.

“The other push out of the CBD is the lack of car parking in the area, plus higher cost of entry if you are driving.”

CBRE Research said that currently, suburban areas account for about a quarter (24 per cent) of the 54.6 million square feet of total office space stock in Singapore.

Between 2014 and 2017, some 5.4 million square feet of new office space is expected be added in the CBD, and just under 1 million square feet outside the city.

Desmond Sim, head of CBRE Research Singapore, said: “The key projects would be Westgate which will be completed end of this year, another key project in Jurong would be Vision Exchange, that will likely come in at 2017.

“Apart from that, there will be pockets of office components that would come in, not forgetting Paya Lebar Square, the fully strata titled development that is also expected to come in this year.”

CBRE said that in the second quarter of this year, the average monthly rental rate for Grade A office buildings in the CBD is S$10.60 per square foot (psf), compared to S$6.55 psf for offices in the suburban areas.

Analysts said new grade A office space in suburban areas like Jurong and Buona Vista has been well-received by companies.

But convincing staff to move away from the CBD will take some work.

In the financial services sector for example, recruitment firm Robert Walters said that it has seen more companies seeking advice relating to relocation in the past 12 to 18 months.

Orelia Chan, manager for financial services at Robert Walters, said: “We do see more relocations coming from CBD to outskirts areas, such as Changi or Jurong as well. What they usually do is they would already have a plan, they may come to us and see what they could do extra to retain the staff.”

Robert Walters said that to encourage staff to relocate, firms can provide shuttle services, transport allowance and flexi-work arrangements.

Companies may also improve the work environment and range of amenities at the new location, for example, by providing a better canteen, a gym and resting areas for staff.

Source : Channel NewsAsia – 9 Jul 2014

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