Tag Archives: Office Space

‘New’ office leases make up only 10% of the total this year: Cushman

AS YET another sign of tough times facing businesses, new office leases this year – by companies that previously did not have a presence here or were not in the building where the new lease is inked – made up only 10 per cent of all office leases inked this year, down from 20 per cent in 2015.

Relocation leases accounted for a significant 63 per cent of the leases, while the balance 27 per cent are renewal leases, based on Cushman & Wakefield’s lease profile analysis.

Its research director Christine Li noted that the stark drop in new leases this year coincided with a cautious business mood as the economy battles headwinds in the banking, oil, and commodities sectors.

Savills Singapore research head Alan Cheong flagged that the technology sector, while still growing rapidly, is unable to make up for the shrinking of office space by troubled sectors. “With a glacial pace of growth anticipated for 2016-2017, net new demand in the near term will be weak,” he said.

Going by the lease profile this year, signs of growth tapering off in the technology sector have emerged.

Technology companies’ share of the office leases inked this year dived to 14 per cent from 33 per cent last year as fewer large-scale tech companies were expanding; the share of finance companies slipped to 24 per cent this year from 36 per cent, while the share of professional/business services firms surged to 17 per cent from 5 per cent as many of these firms are relocating to new office buildings.

Another area of concern is that more than half of the new leases this year were supported by serviced office and co-working players, particularly in the new office developments, Ms Li noted.

These included Regus’ taking up of 12,940 square feet of space in DUO Tower, 20,000 sq ft in Guoco Tower, and 25,000 sq ft at 410 North Bridge Road (Cosmic Insurance Building). JustGroup is occupying some 40,000 sq ft at the former UIC Building for serviced offices and 34,000 sq ft at Marina One for co-working space. The Working Capitol said this month that it is taking up about 55,000 sq ft across 11 floors at 140 Robinson Road – this deal is not included in the Cushman & Wakefield study.

CBRE executive director for office services Michael Tay noted that the full potential of co-working space remains unclear but “with everyone jumping into it, there is always be a concern that there will be a consolidation at some point”.

Noting that the qualities of co-working operators are varied, ranging from some providing a holistic startup community and support services to those that only sell membership for the use of space, Mr Tay said he expects to see mid to long-term consolidation in this sector. The TMT (technology, media and telecommunications) sector may also be primed for some short-term consolidation.

But with quality office space commanding a smaller rental premium this year than before, many office occupiers were prompted to capitalise on a soft rental market to move to better buildings in a “flight-to-quality”.

Some 77 per cent of the relocating tenants signed leases with higher rents on a per square foot (psf) basis, while some 21 per cent of these tenants signed leases with lower rents. About 2 per cent of the tenants signed leases at the same rents as before.

Cushman & Wakefield estimates that a majority of relocating tenants had in 2015 inked leases with rents that were up to S$5.50 psf per month higher than what they were paying before; for the leases signed this year, most relocating tenants have to pay only up to S$2 psf per month more at the new premises.

Ms Li noted that such rental premium would have ranged from S$3-4 psf per month – usually for the movement from Grade-B or C buildings to Grade A-plus buildings – in a landlord’s market.

DBS vice-president for group equity research Derek Tan felt that some tenants may be upgrading to a better location as their renovation costs and fit-outs in existing premises are fully depreciated. They may also be motivated to do so in a bid to attract talent as the millennial workers seem to prefer prestigious office addresses and funky office spaces.

Possibly due to softening rents and an anticipation of rents bottoming out in the future, most office tenants are taking up more space as they signed relocation leases.

Among such leases, some 79 per cent showed an expansion of space requirements, while 13 per cent involved space contraction; the remaining 8 per cent opted for the same amount of space in the new location they are moving into.

Consequently, there was a net increase of 205,000 sq ft of space requirement among tenants that occupy at least 5,000 sq ft, according to Cushman & Wakefield. On average, such tenants took up 8,200 sq ft more space when they signed relocation leases this year, compared to those that took up 6,300 sq ft more space on average last year.

Explaining why a majority of relocating tenants are expanding their spaces, Knight Frank head of office Calvin Yeo said many relocate because they need more space in anticipation of future business activities but are unable to find that additional space in their existing buildings.

Still, with many of them moving into buildings with larger floor plates and higher efficiency, the increase in space requirements would be lower than if they had remained in their existing buildings, he added.

Prime office rents: No reprieve in sight for 2017

The “flight-to-new projects” – a term used by the office leasing sector to describe the trend of tenants swarming into swanky new office projects – is set to continue next year as companies capitalise on softening rents to upgrade their working spaces.

This merry-go-round, however, is causing pain to landlords of older buildings in the Central Business District (CBD). Based on analysts’ projections, overall prime CBD office rents may fall by up to 10 per cent next year.

But capital values may still hold up amid keen interest for office assets from private capital and the infrequency in office transactions in the tightly held sector.

Said Cushman & Wakefield research director Christine Li: “If the current global macroeconomic and local micro-market dynamics continue to prevail, average office rentals are expected to soften in the short term due to supply pressures with DUO Tower, 5 Shenton Way (UIC Building) and Marina One completing over the next six months or so.”

Overall gross effective rents of CBD Grade-A office are expected to drop by up to 5 per cent next year, after an estimated 8.4 per cent decline to around S$8.50 per square foot (psf) per month this year, Ms Li said.

Savills Singapore is expecting a rental decline of about 10 per cent next year for the CBD Grade-A offices that it tracks, which cover those with multinational tenants and floor plates of at least 10,000 sq ft per floor, after an estimated 5 per cent drop in rents this year to S$8.85 psf per month; CBRE is projecting a 5-10 per cent fall in Grade-A office rents in “CBD Core” in 2017.

Consultancies derive these estimates by tracking a basket of prime CBD offices – each varying from one firm to another. JLL, which tracks investment-grade assets in the CBD, is expecting a smaller 6.6 per cent drop in rents next year as the new supply is gradually absorbed, after a 9.9 per cent fall in 2016.

The office rental index of the Urban Redevelopment Authority (URA) for the Central Region (a wider region that includes fringe areas outside the central area) registered a 6.6 per cent drop over the first three quarters of this year, after a 6.5 per cent drop for the whole of last year. It was 13.2 per cent below the last peak in Q1 2015. Office prices in the same region slipped a smaller 2.2 per cent over the first three quarters this year.

Net take-up of office space in Downtown Core (covers CBD, City Hall, Bugis, and Marina Centre) tracked by the URA during the first three quarters – going by change in occupied space – was nearly 183,000 sq ft, a 69 per cent drop from the year-ago period; the historical average from 2011 to 2015 was around 940,000 sq ft. There is typically a lag from lease commencement to the time tenants move into the new premises.

Savills Singapore research head Alan Cheong believes that annual net take-up of CBD Grade-A office may drop to around 500,000 sq ft in the next five years unless new growth drivers step up fast to fill the gap left by beleaguered industries.

Already, the office leasing market this year has been largely driven by relocations rather than new leases. The former made up 63 per cent of all office leases inked to-date, from 37 per cent last year, based on Cushman & Wakefield’s analysis.

JLL head of research for South-east Asia Chua Yang Liang noted that as pre-leasing activity for the new supply such as Marina One, DUO Tower, and UIC Building started around 2015 and 2016, landlords of existing developments are under pressure to keep existing tenants, let alone attract new ones, and this pressure will persist into 2017.

Guoco Tower, which received temporary occupation permit (TOP) in September, hit 85 per cent in occupancy rate for signed leases and those under advanced negotiations. It is said to be bucking the market trend, with asking rents inching above S$10 psf per month in some cases as the landlord GuocoLand fills up the higher floors.

DUO Tower and Marina One, both developed by M+S, are said to have both reached over 30 per cent in pre-lease commitments for office space, according to brokers.

Among the latest relocation leases, BP is said to be moving to Marina One, where it is taking up 70,000 sq ft and letting go of a similar amount of space at Keppel Bay Tower.

Over at 5 Shenton Way, the former UIC Building has secured serviced office provider JustOffice and Japanese shipping group Mitsui OSK Lines, which are taking 40,000 sq ft and 68,000 sq ft respectively.

Based on Savills’ estimate, from Q4 2016 to 2018, around 926,000 sq ft of CBD Grade-A “secondary space” will be freed up by relocating tenants. Together with the available secondary space of 305,000 sq ft carried over from the previous periods, there will be a total of some 1.23 million sq ft of secondary space to be absorbed.

Close to 3 million sq ft in CBD office gross floor area (GFA) is slated to come onstream next year, after some 2.3 million sq ft of office GFA was completed this year, according to Knight Frank.

The relocation story is expected to continue unfolding next year as the upcoming Frasers Tower at Cecil Street is ramping up interest ahead of its completion in 2018 while Marina One and DUO Tower are still filling up their remaining space, said its head of office Calvin Yeo.

Knight Frank is guiding for a 6-9 per cent rental fall for Grade A and Grade A-plus offices in Raffles Place and Marina Bay office precinct next year, following a 10.5 per cent drop in gross effective rents to S$8.87 psf per month this year.

Most analysts believe that any rebound in office rents will come only in 2018. How soon office rents will turn the corner will depend on when net office demand picks up, said DBS vice-president for group equity research Derek Tan. He is projecting a 5-10 per cent drop in office rents in 2017 as net demand stays flat or marginally positive as companies move from older offices to newer ones.

Maybank Kim Eng analyst Derrick Heng said he sees a 5.6 per cent drop in Grade-A office rents next year on the back of rising vacancies before a slight rebound of 2.4 per cent in 2018. But ample liquidity in the market and keen interest in office buildings should keep capitalisation rates or the rate of return on the property tight.

Capital value estimates for CBD Grade-A office still fall within the S$2,300-2,700 psf range for next year. Judging from the recent enthusiastic bidding of the Central Boulevard “white” site in the government land sale programme and the sale of prime buildings such as Asia Square Tower 1 and 77 Robinson Road, institutional investors are confident of the long term fundamentals in the Singapore office market, Dr Chua said, projecting a 4.3 per cent slide in capital values next year.

According to Mr Tan of DBS, the average 3-3.2 per cent capitalisation rates in office transactions – versus the 3.75-4 per cent used by valuers in deriving capital values for most office landlords – suggests that capital values should remain stable.

Uber expands its footprint in Singapore

Ride-hailing giant Uber Technologies Inc is expanding its footprint in a big way in Singapore.

BT understands that it has leased about 55,000 sq ft on Levels 35 and 36 of Guoco Tower.

This is more than double the 20,000 sq ft that Uber is currently leasing at the nearby Mapletree Anson, where Uber’s Asia-Pacific regional office is based.

Sources say that for the past month or so, Uber has been operating at Guoco Tower within serviced offices run by Regus, on the 14th floor.

This arrangement is expected to continue until March next year, subject to Uber completing the fit-out of its space on Levels 35 and 36 in the building.

Uber is said to have signed the lease at Guoco Tower because there was no space for it to expand within Mapletree Anson.

Uber and GuocoLand, the developer of the Tanjong Pagar Centre mixed development (which includes Guoco Tower), declined to comment.

Industry players are wondering if Uber will seek to sublet/find replacement tenants for the space it has leased at Mapletree Anson or retain the space to cater for future expansion of its business in Singapore and the region.

Cushman & Wakefield Singapore research director Christine Li said: “Following Uber’s retreat from China, where it has been reported to have lost at least US$2 billion (S$2.88 billion) over two years, the group may be thinking of expanding more aggressively in other parts of Asia, including Southeast Asia. And Singapore would be a natural springboard.”

Morever, say other market watchers, Uber is expanding beyond the transportation business into lifestyle, logistics and a host of other activities – powered by the Uber app and leveraging its network of drivers, cars and customers.

An early example is UberEATS, an on-demand meal delivery service.

Edmund Tie & Company’s chief executive, Ong Choon Fah said: “Tech companies like Uber collect a huge amount of data and with that data they can venture into so many areas. For instance, Uber can play a big role in last-mile connectivity for people as well as in e-commerce delivery of goods/services – especially during what is now non-peak hours for its network of drivers and their vehicles.

“All this expansion will be powered by technology.”

Ms Li commented that “Guoco Tower came on the market at an opportune time, when some of these tech unicorns (including Uber) need large quality space to gear up for future expansion in the Asia-Pacific region”.

Uber is understood to have signed a three-year lease for the two floors at Guoco Tower, with an option to renew for a further three-year term.

It will be paying a gross effective monthly rental of more than S$9 per square foot.

This is above the high-S$7 to mid-S$8 psf range that other large tenants in the building negotiated earlier this year or late last year.

Besides landlord GuocoLand firming office rents as it filled up more and more of the building, another reason for the higher rent is that Uber is taking higher floors.

Guoco Tower, the 890,000 sq ft office component of the Tanjong Pagar Centre mixed development, spans the lower 38 levels of a 64-storey tower. Above the offices is the 181-unit Wallich Residence.

Other big tenants in Guoco Tower include Dentsu Aegis Network (around 100,000 sq ft), ING (about 70,000 sq ft) and Itochu Singapore.

BASF selling five office floors at Suntec Tower One for S$129.3m

FIVE office floors in Suntec Tower One are changing hands for a total sum of S$129.3 million, which works out to S$2,400 per square foot on strata area of 53,863 sq ft, based on caveats data.

The five floors – Levels 24, 25, 34, 35 and 36 – are being sold by BASF South East Asia, a part of German chemicals giant BASF, which currently occupies the space.

The floors are being bought by companies which are believed to be linked to the Singapore-based ARA group. Suntec City is on a site with a balance lease term of around 71 years.

BASF – which is involved in a broad range of areas from chemicals, plastics, performance products and crop protection products to oil and gas – is expected to lease back at least some of the space it is selling.

The Business Times could not reach officials at BASF in Singapore as well as ARA on Thursday.

Savills Singapore, which is understood to have brokered the transaction, declined to comment.

BASF is headquartered in Ludwigshafen, Germany. In 2015, the group posted sales of 70 billion euros (S$106 billion) and income from operations before special items of around 6.7 billion euros, according to information on its website.

Market watchers note that the S$2,400 psf pricing for the Suntec City office space in the latest deal is lower than the S$2,648 psf achieved in November 2015, when Maybank Kim Eng Properties sold three floors, Levels 12, 13 and 39, at the adjacent Suntec Tower Two to Suntec Real Estate Investment Trust (Suntec Reit) for S$101.56 million under a sale-and-leaseback arrangement. That transaction involved a total strata area of about 38,352 sq ft and a net property income yield of about 3.9 per cent.

CBRE director of investment properties Sammi Lim said: “The latest transacted price on the surface appears to be a lower per square foot rate than the deal a year ago, especially given that the floors in the recent transaction are on higher levels. However, given the total deal quantum, such bulk discount is considered fair by industry standards.

Differences between the structures of the two deals may also have affected the pricing, she added.

Suntec Reit is managed by ARA Trust Management (Suntec) – a fully owned subsidiary of ARA Asset Management. The Reit owns Suntec City mall, the whole of Suntec Towers Four and Five and some office units in Suntec Towers One, Two and Three, along with a 60.8 per cent effective interest in Suntec Singapore Convention & Exhibition Centre (Suntec Singapore). It also has a one-third stake in One Raffles Quay and a one-third interest in Marina Bay Financial Centre Towers 1 and 2 and the Marina Bay Link Mall.

While some industry observers suspect that Suntec Reit may be involved with the latest purchase of the five floors being sold by BASF, others suggest the buyer is more likely to be a private fund managed by ARA Asset Management.

ARA Asset Management recently completed the purchase of a 50 per cent stake in Capital Square from Alpha Investment Partners for S$475.5 million; the deal valued the entire building at S$951 million or S$2,450 psf.

Capital Square is on a site with about 78 years balance lease term.

The Work Project is official co-working partner of OUE’s Downtown Gallery

THE Work Project – a Hong Kong-based co-working space operator – is the official co-working space partner of Downtown Gallery in OUE Downtown, OUE’s upcoming mall located at 6 Shenton Way, The Business Times has learnt.

It will fill the entire fourth floor of Downtown Gallery – that is, 20,000 square feet of space – and is set to deliver a new concept here of workspaces designed for the future workforce.

Junny Lee, founder of The Work Project, told BT: “We recognise that the co-working industry is growing, but we are completely different from competitors in the region. For one thing, we are sited at the heart of a mixed-use development – this gives our members access to a wide range of food and lifestyle facilities, right at their doorstep.”

Co-working spaces here – which have multiplied in the last few years – are mostly located in shophouses, serviced apartments or office buildings.

Downtown Gallery was unveiled (in July) as part of integrated development, OUE Downtown, which comprises serviced residences, and retail and office spaces. Tenants of Downtown Gallery will include a farmer’s market by The Providore, boutique fitness studio GuavaLabs, and a pre-school run by Mulberry Learning Centre.

Mr Lee said The Work Project’s aspirations are entirely in line with those of Downtown Gallery – representing the future of luxury, wellness and bespoke. “We are Office 2.0. Our workspaces are created with the individual in mind, and are multi-sensory, with thought put into how they look, smell and sound. This drives productivity and work happiness.”

He added that The Work Project will offer unprecedented flexibility. Businesses can choose between hot desks and private offices, and any start date or booking period (on a monthly or even daily basis). “Members don’t need to be married to a space. We offer a truly flexible environment where they can work according to what task they want to get done on any day.”

Notably, The Work Project is modelling itself after the hotel industry, allowing interested businesses to first check out available spaces and pricing via its website instead of making an instant booking. Rates may fluctuate month to month depending on demand. Mr Lee said: “We want to be transparent, by providing full information on all our rates and inventory.”

In Hong Kong, where The Work Project first opened (in September), an individual hot desk costs about HK$300 (S$55) a day on average, and a private office for two starts from HK$13,905 a month. The co-working space is sited in Midtown Soundwill Plaza II at Causeway Bay, and has 74 private offices and 80 hot desks across four floors.

When asked why Hong Kong was picked as the first city, Mr Lee cited “extraordinarily high” office rents. “We feel we can really add value in Hong Kong, where office leases are among the most expensive in the world. The Work Project not only offers a flexible solution, but value for money for businesses and entrepreneurs.”

According to the South Korea-born entrepreneur who became a Singapore citizen 31/2 years ago, the average rent paid by companies per employee in Hong Kong is about HK$9,000 a month. But with The Work Project, that can go to as low as HK$6,600 a month for 10 employees, based on a configuration of a six-person private office and four hot desks.

Rates for The Work Project in Singapore are being finalised. Downtown Gallery will mark its second space globally. Mr Lee said that when full, it can host 350 members. Its target tenants are companies that are “part of the knowledge economy”, such as those in consulting, design, branding, advertising and public relations.

Patrina Tan, senior vice-president for retail, marketing and leasing at OUE, told BT: “What we are trying to do is build an ecosystem with all our partners in this semi-retail development that is Downtown Gallery. For instance, members of The Work Project can get discounts at in-mall amenities such as gyms and restaurants.”

She added that Downtown Gallery seeks to transform the way people live, work and play. “Innovating is essential to our goal of injecting vibrancy into the retail landscape, and we welcome the opportunity to work with more partners like The Work Project who share our vision.”

Downtown Gallery will open its doors in the first quarter of 2017.

Homegrown firm JustCo looks to ‘super-size’ co-working spaces in Singapore

Homegrown space provider JustGroup is rapidly scaling up its presence in the segment of co-working spaces, with plans to open two new shared offices in the heart of Singapore’s Central Business District (CBD) next April.

Its co-working brand JustCo currently offers 50,000 square feet of space at two locations – 120 Robinson Road and 6 Raffles Quay. With a combined floor area of more than 100,000 square feet, the upcoming facilities at UIC Building and Marina One will more than triple the company’s footprint in the burgeoning real estate segment in Singapore.

Spanning approximately 40,000 square feet across two levels, the new space at UIC Building will have up to 1,000 desks, as well as features for various work purposes including quiet pods, stand-up meeting rooms and an event space with tiered seating arrangements.

Apart from these, Channel NewsAsia understands there will also be special facilities such as a Venture Lab where early-stage start-ups can meet representatives from larger businesses and prospective investors, as well as a Silicon Valley-style project space for companies to brainstorm and develop their ideas before testing out prototypes.

For the space at UIC building, the first storey will open in April while the second storey is slated for its official launch in November 2017.

Over at Marina One, the new location will be fitted with approximately 500 working desks, making it the largest single-storey co-working space locally, according to JustCo. Its location at the heart of the Marina Bay financial district will also offer a “unique opportunity” for businesses of various sizes “to set up in a prestigious location that previously would have been reserved for the large corporates”, said founder and CEO Kong Wan Sing.

On why the firm has decided to “super-size” its presence with two new mega shared offices in the pipeline, Mr Kong told Channel NewsAsia: “The demand for co-working in Singapore is growing rapidly so we’re increasing our space to meet the demand. Plus, there is a shift in the types of companies using co-working space to bigger and well established companies so we’re expanding our offering by adding prime buildings and locations like Marina One.”

In addition, Mr Kong believes that the physical expansion will expedite the growth of its community, therefore offering its members a bigger network to tap into. “New members are instantly connected to a network of individuals and businesses who can help them expand, find new clients, partner up or connect with investors,” he added.

Industry observers noted that JustCo, which unveiled its first space along Robinson Road last September, is among the most aggressive players in the local market. Its parent company JustGroup also has a serviced office arm JustOffice, which operates on a rental workspace concept catering to larger businesses.

“In order to meet the needs of the millennial generation, serviced office providers have begun offering the option of co-working. If you look at JustCo’s footprint, they are expanding aggressively to build up their brand and defend market share,” said Ms Christine Li, research director at Cushman and Wakefield.

“They already have a community which helps them to project how much demand there is for co-working spaces so that gives them the confidence to expand,” she added.

MEGA CO-WORKING SPACES IN CBD: MORE IN THE PIPELINE?

JustCo is not alone in rolling out sprawling co-working spaces in the CBD area. Earlier in the week, The Working Capitol (TWC) unveiled a 55,000-square-foot facility along Robinson Road, its second location after opening its first at Chinatown in 2014.

Spread across 11 floors, the new addition by TWC offers options for businesses with staff ranging from one to 200 people. Initial members include a FinTech (financial technology) lab by RHB Bank and a 100-person tech unicorn that will be occupying an entire floor. A unicorn is a start-up that is valued at one billion dollars or more.

Ms Li from Cushman and Wakefield attributed this take-up of prime offices by co-working space operators to the lingering glut of office spaces and softening rents. According to Ms Li, almost 2.3 million square feet of office space will hit the market next year.

“This supply situation means there are now many options in the market. The rental differences between CBD and suburban locations have also narrowed so it probably makes more sense for these players to expand in the CBD.”

However, a steady stream of new players have since jumped into the rapidly-growing segment and Ms Li noted that even as the concept of co-working remains highly in demand, consolidation is bound to occur. Players who derive their revenue predominantly on cheap rents and have yet to establish their niche will be most at risk.

“Nearly 80 per cent of co-working spaces are located outside of the CBD and their rents are quite manageable. So some players charge their members a bit more and depend on that little premium to be sustainable,” Ms Li explained.

“Overtime, if they do not build up their community and continue to rely on this difference in rent to survive, it will be tough because there are many regional and global players coming into Singapore,” she added.

Source : Channel NewsAsia – 9 Dec 2016

Manulife said to be doing due diligence on PWC Building

PWC Building at 8 Cross Street could be in the early stages of a potential sale.

BT understands that insurer Manulife has been selected to do exclusive due diligence for the purchase of the 28-storey building, which has a net lettable area (NLA) of 355,704 sq ft.

PWC Building, which is owned by DBS, is on a site with a balance lease term of 78.5 years.

The price is expected to be more than S$700 million. According to information in DBS’s 2015 annual report, PWC Building was independently valued at S$711 million at the end of last year; this works out to S$1,999 psf on NLA.

Talk in the market is that Manulife was selected to do due diligence following a private expression of interest exercise conducted on behalf of DBS. When contacted on Thursday, a spokeswoman for the bank declined to comment.

Manulife did not respond to BT’s queries by press time but sources say it is looking at a part occupation/part investment strategy for the building, which is at the corner of Cross and Telok Ayer streets.

Manulife operates at a few locations on the island, but principally at Manulife Centre at Bras Basah Road.

Analysts say the Canadian insurer is keen to boost its physical presence in Singapore’s financial district – in sync with the increased market share it is eyeing in Singapore following its 15-year exclusive bancassurance partnership with DBS which kicked in on Jan 1 this year.

What makes PWC Building a good acquisition for Manulife is that close to half of the building will be vacated when anchor tenant PricewaterhouseCoopers (PwC) moves to Marina One, where it has signed a lease for around 180,000 sq ft.

Manulife is said to occupy around 90,000 sq ft at Manulife Centre and its lease runs out in late-2017. Manulife Financial Advisers operates out of VisionCrest Commercial. Some of the group’s agencies are located elsewhere including Kallang.

Moving into 8 Cross Street would help Manulife keep up with the competition, who all have visibility in the financial district.

Prudential is just a stone’s throw away at its namesake tower (although it will be moving to Marina One); AIA Tower along Robinson Road is also nearby.

NTUC Income reaps great brand-presence through its ownership of Income at Raffles at 16 Collyer Quay – although its headquarters are at Income Centre at 75 Bras Basah Road, near Manulife’s headquarters.

Market watchers note that the Canadian insurer used to have a limited market share in Singapore before strengthening its multi-distribution strategy through a bancassurance deal with DBS starting this year.

Under the agreement, Manulife pays DBS S$1.6 billion over 15 years in exchange for letting it sell life and health insurance products to the bank’s more than 6 million retail, wealth and SME customers in Singapore, Hong Kong, China and Indonesia.

Singapore office rents are soft but offices have posted a stellar performance on the investment sales scene this year.

Based on Savills’ database, the tally for office deals originating from the private sector stands at S$7.3 billion, up from S$4.9 billion in 2015.

The major deals this year include Qatar Investment Authority’s acquisition of Asia Square Tower 1 (S$3.38 billion), CapitaLand Commercial Trust’s purchase of the remaining 60 per cent stake in CapitaGreen (S$960 million) and Indonesian tycoon and philanthropist Tahir’s purchase of Straits Trading Building in Battery Road for S$560 million (to be completed later this month).

Other sizeable deals include the S$530.8 million acquisition of 77 Robinson Road by CLSA Capital Partners and the sale of the office tower at Mapletree Business City Phase 1 (S$471.9 million).

Alpha Investment Partners recently sold its half stake in Capital Square to ARA Asset Management for S$475.5 million (the deal values the entire building at S$951 million or S$2,450 psf).

Meanwhile, interest could have fizzled out at One George Street, where China Life Insurance and Haitong Securities were earlier carrying out due diligence.

PWC Building was developed jointly by DBS and the former DBS Land (which later merged with Pidemco Land to form CapitaLand).

DBS bagged the 99-year leasehold site for S$367.31 million or S$800 per square foot per plot ratio at an Urban Redevelopment Authority tender that closed in January 1996.

It later teamed up with DBS Land to develop the site through a 70:30 tie-up; the total development cost was estimated at S$1,500 psf.

Last year, CapitaLand divested its 30 per cent stake in the the company that owns PWC Building to DBS.

According to a stockbroking house report at the time, the deal priced the property at close to S$1,892 psf.

The building had 97 per cent committed occupancy at the time.

BlackRock said to explore sale of second Singapore office tower

BlackRock Inc, the world’s largest asset manager, is exploring a sale of its second office tower in Singapore’s central business district, people with knowledge of the matter said.

BlackRock has started reaching out to potential buyers to gauge their interest in Asia Square Tower 2, according to the people, who asked not to be identified as the information is private. The development could fetch about S$2 billion, the people said.

Asia Square Tower 2 sits on the site next to Tower 1, which the Qatari sovereign wealth fund agreed to buy in June from BlackRock for S$3.4 billion in Singapore’s biggest office transaction.

The 46-story Tower 2, spread over 784,100 square feet (72,845 square metres), includes office space as well as a Westin hotel. The building has an occupancy rate of over 90 per cent at the end of October, according to Cushman & Wakefield Inc.

Office transactions in Singapore have been picking up this year, with CapitaLand Commercial Trust agreeing in May to buy 60 per cent of the CapitaGreen tower in the central business district for S$393 million.
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Investment company MYP Ltd the next month said it plans to offer S$560 million for the Straits Trading Building. The government is also selling prime land in the Marina Bay financial district, the first such sale in nine years.

Representatives for BlackRock didn’t immediately answer phone calls seeking comment.

Asia Square is owned by MGPA, which was acquired by BlackRock in 2013. MGPA developed the two towers on two adjoining plots it won in 2007 at government land auctions.

A human centric approach to designing the future workplace

THE concept of the workplace is evolving. Historically, the quest was to design the perfect workplace focused on the infrastructure and physical design, taking into account technological transformations, with business cost efficiency being a major driver. This approach, however, often neglected the human aspects and how the talent interacted in and around the space and how productivity was maximised.

This “single serving” mentality – buildings to house workers and workstations for employees – ignores the potential to transform urban spaces in cities worldwide into more holistic and human-centric precincts. As a result, commercial areas, especially central business districts (CBDs) around the world, turn into dead areas after dark and on the weekends. But it need not be this way.

A number of designers and developers are taking the lead with a more holistic, and more importantly, a more human-centric approach to designing the workplace and the ecosystem around it. The benefits are multi-fold – not only can employee talent be served better by increasing their productivity and well-being, the surrounding community may benefit as well.

Where the future works

This is what urban regeneration is about – as cities house more people than ever before, buildings need to be designed and constructed with people foremost in mind.

Many urban regeneration projects around the world are doing exactly that. From the vast Barangaroo South precinct in Sydney to International Quarter London, the centre of Europe’s largest urban development, these large-scale projects are transforming not just the skyline but also creating environments that are fit for the future way of working.

The common thread among each of these industry-leading developments is the fact that they are not just one-dimensional workplaces. Each is designed to be mixed-use projects from the very start, integrating a variety of asset classes – including shops, hotels, offices, parks, residences and leisure and entertainment offerings, providing a broad spectrum of amenities and experiences for the working population.

The workplace of the future will be part of a greater eco-system of amenities and complementary businesses, bringing together large public spaces, vibrant round-the-clock retail, leisure and entertainment options and seamless transport connectivity.

These future workplaces will also have a strong community focus, building in broad-ranging cultural, living, and working spaces, catering not just for the wellness of inhabitants, but for their well-being.

Closer to home, the ambitious Jurong Lake District and other up-and-coming business hubs in Buona Vista, Woodlands Central and Paya Lebar Central represent a similar take on the future of workplaces – which are not just for business but also offer inclusive community spaces for the broader population.

Connected and inclusive

With progressive cities such as Singapore moving towards being more car-lite, future workplaces will not just be easily accessible via public transportation networks, but also have dedicated amenities to support the needs of other active mobility methods.

End-of-trip facilities with bicycle parking, lockers, changing rooms and showers will be ubiquitous in future workplaces, supporting cyclists’ and joggers’ commutes to work.

Workplaces of the future will be sustainable hubs that seamlessly integrate social, leisure and work spaces. With this hub model, amenities and services do not just serve workers during working hours, but also the catchment of residents within the development and in the vicinity, acting as a gathering place where residents and visitors are able to connect with one another.

To transform the face of the workplace, there will also be curated retail and entertainment options that reinvent the entire development into a destination in and of itself.

For example, instead of the usual shopping complex serving the lunchtime crowd, future workplaces will feature alfresco dining streets, lush green spaces and multi-purpose plazas for community events or pop-up concepts.

Collaboration and concentration

The recent trend in workspace concepts is undeniably more human-centric compared to the past, with employers embracing the productivity benefits that open-plan spaces and hot-desking provide. The future of work is seen as much more collaborative and flexible, responding to the behaviours and working culture of the millennial generation.

A CBRE paper on workspace preferences by different generations revealed that while millennials do value spaces meant for socialising more than other generations, the most important spaces to them are those that allow them to think and concentrate.

In addition, the paper also found that millennials actually spend slightly more time doing individually focused work compared to their older colleagues. What this means is that workplaces of the future should allow for flexible designs and account for a broad variety of needs, such as private nooks where employees can focus their thoughts, providing a holistic rather than a homogenous environment for all.

Healthy and happy

Apart from having progressive fit-outs, the future workplace should promote the overall well-being of occupants. Beyond taking care of the physical wellness of inhabitants, ensuring well-being actually goes one step further, to a state where employees are both healthy and happy.

Developers globally are recognising that there should be metrics to account for the shift towards assessing the well-being of workplaces. In Singapore, the Building and Construction Authority’s Green Mark 2015 parameters include human-centric assessments on indoor air quality, lighting and acoustics, among others.

The improvements to productivity brought by a focus on employees’ well-being are not intangible – a JLL research found that both improved acoustics and privacy boost productivity by 6 per cent each, while improved views, lighting and daylighting increase productivity by 5.5 per cent. Improved air quality also mitigates problems caused by the “sick building syndrome”, cutting down short-term sick leave by 35 per cent according to one study.

In short, beyond function-driven approaches of providing fittings and layouts, a holistic approach to well-being ensures that every company’s most valuable resource – its employees – are well looked after.

Designing the future workplace involves looking beyond a functional office, to also creating a civic central for talent to flourish.

By RICHARD PAINE – managing director, Paya Lebar Quarter by Lendlease

Narrowing gap between Grade A and B office buildings

ACCORDING to the Ministry of Trade and Industry, Singapore’s economy grew 2.1 per cent year on year (y-o-y) in Q2 2016, the same rate of growth as the previous quarter.

With looming concerns over the weaker global outlook and the impact of Britain’s vote to leave the European Union, its economic growth forecast for 2016 also narrowed to 1 per cent to 2 per cent instead of the 1 per cent to 3 per cent projected earlier.

Concerns over the global economic climate continued to dampen Singapore’s business outlook which in turn negatively impacted the performance of the office market.

Net new demand remained muted with few expansion plans and more modest space requirements from fewer new market entrants.

 

All these come at the same time as an upcoming wave of new development completions.

As a result, the rental premium between Grade A and Grade B buildings has narrowed, spurring occupiers to make a “flight to quality” move to premises at more competitive rentals.

As at Q2 2016, the average Grade A CBD Core rents tracked by CBRE Research have declined for the fifth consecutive quarter, contracting 4 per cent quarter on quarter (q-o-q) to S$9.50 per square foot per month (psf/month). The average Grade B CBD Core rents also corrected by 3.8 per cent to S$7.65 psf/month.

Generally, CBRE Research defines a Grade A building as a landmark building with modern flexible layout and floor plates above 18,000 square feet (sq ft). The building size is above 300,000 sq ft and offers underground parking and good lift services zoned for passengers and goods delivery.

It offers high technical specifications (such as raised floors, 24-hour cooling system) and good quality building services (for example, security, CCTV), and is professionally managed. The building should also be located close to public transport.

Out of a CBD Core office stock of about 27.6 million sq ft, approximately 43 per cent of this stock is classified Grade A CBD Core. The rest of the office stock is classified Grade B CBD Core.

Highly sought after

Grade A buildings are highly sought-after especially by multinational institutional occupiers as they offer modern office features with large contiguous, often column-free space, with modern specifications as well as prestige.

Rents for such office buildings therefore are transacted at a premium over other buildings that do not necessarily meet all the Grade A features and specifications. The latter is generally classified Grade B.

This rental premium can be seen in the chart where the rental premium of the average Grade A CBD Core over Grade B CBD Core office rents is shown.

The chart shows that the rental premium is currently 24 per cent. This is the lowest for a 10-year period from Q1 2006 to Q2 2016 in light of current weak office demand and rental conditions.

Nonetheless, while the 10-year average rental premium is 36 per cent, it should be noted that this is propped up by the high rental premium achieved during the period from 2007 to 2009 when the average Grade A CBD Core rents rose at a faster pace than the average Grade B CBD Core rents.

Being more representative of recent market conditions, the five-year average rental premium is slightly lower at 30 per cent. This is also a reflection of a less volatile Grade A market in the recent cycles.

With the current rental premium 6 per cent lower than the five-year average, occupiers are enticed by the opportunity to locate their operations in Grade A buildings. “Flight to quality” has been driving leasing commitments to Grade A office developments.

Developers of upcoming Grade A office buildings especially have found it necessary to offer very competitive pre-lease terms in order to secure leasing commitments.

Faced with increased competition, existing landlords have also sought to retain occupation through the structuring of new renewal deals. They have found it necessary to adjust to market conditions with more competitive pricing and flexibility in leasing terms.

Unsurprisingly, Grade A rents continue to correct faster than their Grade B counterparts.

With limited net new office demand, office leasing deals are mainly driven by a “musical chairs” movement from one building to another. Grade B buildings that have hitherto enjoyed relatively high occupancy levels will thus face greater challenges to retain their existing tenants or attract new tenants.

In the past six to 12 months, a marked increase in leasing activity in the Grade A market was observed, bolstered by this “flight to quality” movement and occupiers taking advantage of attractive terms on offer. It should be noted that these opportunistic leasing deals were primarily focused on new Grade A projects and a few large deal negotiations have been reported.

Vacancy rate

With no new completions this quarter, the vacancy rate for the Grade A CBD Core office market remains relatively stable, registering only a marginal increase from 5 per cent to 5.2 per cent. The vacancy rate for Grade B CBD Core remains at 4.6 per cent q-o-q.

However, it should be mentioned that the CBD Core office market will not be able to enjoy such low vacancy levels for long.

Vacancy levels are expected to rise sharply over the next six to nine months with the physical completions of a number of new developments which collectively offer a significant amount of space available for lease.

Despite the Grade A market benefitting more from the “flight to quality” moves, it should be noted that all is not lost for the Grade B office market.

Not all potential office occupiers require Grade A specifications for their occupation needs. Some occupiers, especially smaller-scale businesses, do not require large floor plates or high specifications. They prefer low occupancy cost and low price volatility.

Hence, landlords of Grade B buildings should find ways to cater to SMEs and include them as another source of demand alongside traditional large occupiers.

While it is clear that the smaller space requirement of SMEs limits their potential leasing demand and they are unlikely to ever match the role large companies play in office space take-up, CBRE Research believes there is still a role for them alongside large corporations as a supplementary office demand driver.

What they lack in scale, they make up for in numbers. This is predicated on a strong SME and startup growth trend, that SMEs will be a distinct focus for the government as well as the rise of the sharing economy. Thus stability in the Grade B market is expected in the mid to long term.

This is an opportune time for landlords to relook the way the office leasing format has traditionally been run. This is not to say a revamp should be on the cards but there is definitely room on the part of landlords to incorporate greater flexibility in office space use to target SMEs.

The potential benefits far outweigh the costs involved. With a little effort, landlords will be able to capitalise on a relatively untapped pool of demand that is expected to grow from strength to strength.

Looking ahead, while the market is affected by the weak global economic outlook and caution has surfaced around the large future stock due for completion over the next six to nine months, the narrowed premium for Grade A rents has seen some encouraging leasing activity among the new developments over the past couple of quarters and may in due course help to build some momentum for the office sector.

Return to growth

While the short-term outlook remains weak, CBRE Research believes that the market may return to growth beyond end 2017 once the supply wave passes and assuming prospects for the underlying economy improve.

The rental premium between the Grade A and Grade B office market may widen slightly back to five-year historical levels of about 30 per cent.

However, because of decentralisation options, a constantly improving quality of office stock as well as a pro-actively managed future supply, this rental premium is not expected to surpass levels last seen from 2007 to 2009.