Office Leasing Market

PROPERTY consultancy Knight Frank is expecting office rents in Singapore to fall by around 5 per cent in 2021 before bottoming out and recovering in the following year, barring new strains of the Covid-19 virus and consequent lockdowns.

This comes amid a projected 5.3 million square feet (sq ft) of new supply islandwide from Q4 2020 to 2023, with central business district (CBD) occupancy for the period estimated to hit 94.1 per cent and overall prime office rents to average S$10.16 per square foot per month.

In its latest Q4 2020 report on the Singapore office market, Knight Frank said it foresees lower net new demand for office space, given the permanent adoption of rotational remote working by many corporates.

Examples include Mizuho and Sompo Insurance, which recently trimmed about 16,800 and 26,000 sq ft from their office spaces in Singapore respectively.

CIMB Bank in December 2020 was also reported to have leased over 50,000 sq ft in 30 Raffles Place, formerly known as the Chevron House. Knight Frank highlighted that this is less than its existing space of 70,000 sq ft at Singapore Land Tower.

“The rethinking of traditional office space usage in an age of flexible work arrangements, and the casualties of the Covid-19 pandemic as the government withdraws business support measures, will likely add to contractionary pressures for office space,” the consultancy added.

While Knight Frank expects the trend of consolidating and paring down real estate footprint to persist among the banking and insurance sectors, it believes that information and technology communications (ICT) companies will remain active in the office market.

Tech giants such as ByteDance and Tencent announced expansion inroads into Singapore this year as ICT firms inadvertently benefited from the Covid-19 pandemic, it noted.

“With an estimated S$3.5 billion invested for ICT procurement in 2020 and a further S$25 billion into research, innovation and enterprise activities till 2025, global firms and family offices have been and will continue to be drawn to set up in Singapore,” it said.

Other factors that will boost Singapore as an office destination includes the Singapore government’s effective handling of the Covid-19 outbreak, as well as the government’s commitment to developing key sectors of the economy, added the consultancy.

Its research shows that prime grade office rents in the Raffles Place/Marina Bay precinct contracted 10.2 per cent in 2020, as rental declines moderated in the final quarter of the year to dip by 2 per cent quarter on quarter, compared to the 2.3 per cent decrease in Q3.

While pre-termination space increased to an estimated 330,000 sq ft in Q4 2020 from 260,000 sq ft in the previous quarter, occupancy levels for prime grade offices remained supported by these committed leases to result in a slight 0.2 percentage point quarter-on-quarter decline in Q4.

By Michelle Zhu, The Business Times/ 19-Jan-21

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office for sale

US PRIVATE equity giant Blackstone Group is planning to buy Lucas Real Estate Singapore’s iconic facility, the Sandcrawler, at an indicative price of nearly S$175.8 million, The Business Times (BT) has learnt.

The sale process is ongoing and will be subject to approval from JTC Corporation. BT understands that CBRE brokered the deal.

The futuristic-looking, horseshoe-shaped building’s design was inspired by the Star Wars franchise’s giant fictional vehicles with the same name.

Located within the Fusionopolis cluster in Buona Vista, the state-of-the-art complex houses Lucasfilm’s visual effects and animation studio, Industrial Light & Magic (ILM).

The eight-storey building’s occupancy rate is said to be in the high-90 per cent range. Market watchers said the indicative price tag of around S$175.8 million reflects a net yield of about 4 per cent based on its existing rental income. Aside from ILM, major tenants included Singapore’s Government Technology Agency (GovTech), DBS’s innovation centre, Lucasfilm’s parent firm The Walt Disney Company, as well as ESPN Asia Pacific.

The 22,500-square-metre campus features a metallic external facade. It has office space, retail areas, lush gardens, and a 100-seat theatre with an exterior resembling Darth Vader’s signature helmet. The building premises are also adorned with movie posters and memorabilia such as stormtrooper helmets and a Yoda fountain.

BT has reached out to Disney and ILM Singapore for comment.

Attendees at the building’s official opening in January 2014 included Singapore Prime Minister Lee Hsien Loong as well as Lucasfilm founder and Star Wars director George Lucas.

ILM Singapore was the company’s first international studio beyond its San Francisco headquarters.

CNBC reported in 2014 that Mr Lucas himself invested in the Singapore facility, although Lucasfilm declined to provide details on the size of its investment then.

By Fiona Lam, The Business Times/ 13-Jan-21

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office for rent

GRADE A office rentals in the Central Business District (CBD) are generally expected to remain under pressure in 2021, say property consultants, as companies scale back on space amid economic headwinds.

According to JLL’s head of research & consultancy Tay Huey Ying, CBD Grade A office rents are expected to fall in 2021, although the decline could moderate to about half the 9.3 per cent pullback seen in 2020 as the economy gets back on track.

Chris Archibold, JLL’s head of leasing, expects there will be some firms reducing office space, as has been the case with past downturns.

Mr Archibold added: “Given that technology has given occupiers the ability to work remotely, the outcome could well be in excess of that seen during the Global Financial Crisis, though we are currently at around the same level.”

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PROPERTY investment sales in Singapore are likely to rebound as vaccination programmes are rolled out next year, with business sentiment picking up and border restrictions gradually eased, CBRE said in a press statement on Monday.

Michael Tay, head of capital markets for Singapore at CBRE, noted that the Singapore investment market has been resilient and has demonstrated its ability to recover from crisis situations in the past. “This was apparent post global financial crisis when real estate investment sales volume improved by a strong 265.4 per cent in 2010,” he said.

While investors are likely to remain discerning at the start of next year, they will still be in search of investments that provide higher returns, spurred by the low interest rate environment and ample liquidity, Mr Tay said.

As an investment destination, Singapore fits this bill given its “proven ability to handle the pandemic, macroeconomic stability and political-neutral stance”, he added.

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CUSHMAN & Wakefield is projecting rents in Singapore’s central business district (CBD) to land at S$9.54 per square foot (psf) per month by the end of 2020, down 10 per cent from 2019’s peak of S$10.66 psf per month, it said in a report on Thursday.

Emerging vacancy in the market placed a downward pressure on Grade A office rents, CBRE said in a separate report on the same day.

In the fourth quarter of 2020, Grade A office rents corrected for its fourth consecutive quarter, declining at 2.8 per cent quarter on quarter to S$10.40 per square foot per month.

This represented a full year decline of 10 per cent in Grade A office rents, which reversed the rental growth of 6.9 per cent in 2019, CBRE’s report noted.

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THE pandemic took its toll on office rents in the third quarter as souring business sentiment and a weaker labour market prompted rentals of office space to decline 4.5 per cent quarter-on-quarter for the Central Region after holding steady in the previous quarter.

Analysts said that more occupiers sought to right-size and cut costs by scaling back on some or all their space as leases came up for renewal, while landlords had to lower rents more aggressively to find replacement tenants.

With working from home still the default, office space is also under-utilised, said Christine Li, head of research, (Singapore and Southeast Asia) for Cushman & Wakefield.

Real estate consultancy JLL estimates that the average monthly gross effective rents for Grade A CBD office space came down by 3.8 per cent quarter-on-quarter to S$10.08 per square foot (sq ft) in Q3, accelerating from a 3 per cent decline in Q2.

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RENTALS of office space in the central region of Singapore fell 4.5 per cent quarter on quarter in the third quarter of 2020 after remaining flat in the previous quarter.

Figures released by the Urban Redevelopment Authority (URA) on Friday also showed that prices of office space in the central region went up 0.2 per cent in Q3 after declining 4.3 per cent in the previous quarter.

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RENTS for business parks in Singapore’s city fringe are projected to rise as more firms seek out business parks with Grade-A office specifications in a bid to cut their real-estate costs.

In the third quarter of 2020, rents of business parks in the city fringe stood at S$5.91 per square foot per month (psf/month), up 0.2 per cent quarter on quarter and 2.4 per cent higher from a year ago, data from real estate services firm Cushman & Wakefield showed.

Christine Li, the company’s head of research for Singapore and South-east Asia, said another factor driving the move to business parks is the trend of companies with a large proportion of their employees working from home, thus lowering the need for central business district (CBD) office space.

She said: “The movement towards business parks with Grade-A specifications and the continued moderation of Grade-A CBD rents will further narrow the rental gap between CBD office and city-fringe business park space over the next few quarters.”

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BIG Tech firms are snapping up office space in Singapore, taking advantage of crimped rents amid the recession set off by the Covid-19 pandemic. These include a gaggle of Chinese tech giants seeing Singapore as a base to expand into Asean.

Bloomberg reported on Friday that Tencent Holdings has chosen a co-working space for its first office in Singapore.

Citing unnamed sources, Bloomberg said Tencent is expected to take up 10,000 square feet (sq ft), translating to about 200 seats at JustCo’s co-working space in OCBC Centre East at Raffles Place.

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[SINGAPORE] Tencent Holdings has chosen a co-working space for its first office in Singapore, joining other Chinese tech giants in using the city-state for a launching pad into the rest of Asia.

The WeChat owner will have almost 200 seats at JustCo’s co-working space in OCBC Centre East at Raffles Place, according to people familiar with the plans, who asked not to be named because the matter is private. The space amounts to 10,000 square feet, or 929 square metres.

The lease runs for one year, giving China’s largest social media and video-gaming company flexibility to seek a larger space as it adds staff, the people said. Tencent said in September that it would open an office in Singapore.

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SIX shophouses – three on Baghdad Street, and three in the Telok Ayer area – were put up for sale on Wednesday.

With the sites for all six shophouses zoned for commercial use, purchases are open to both local and foreign buyers, with no additional buyer’s stamp duty to be imposed.

Three adjoining prime shophouses at 14, 16 and 18 Baghdad Street are up for sale as an entirety by expression of interest (EOI) at an indicative price of S$7.64 million. This works out to about S$3,000 per square ft (sq ft), sole marketing agent CBRE said in a statement.

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THE current global recession will have a more benign and shorter-lived impact on offices in the Asia-Pacific (APAC) – excluding Greater China – than elsewhere around the world, while the region’s office sector will take just a marginal hit from the work-from-home phenomenon.

That’s according to real estate services firm Cushman & Wakefield (C&W), which noted that all APAC economies are set to see gross domestic product (GDP) return to pre-Covid levels by Q3 2021 in the baseline scenario.

The slowdown in the creation of new office-using jobs as well as the outright job losses will challenge office leasing fundamentals over the next six to 18 months, C&W noted in a report published on Thursday.

That said, demand – as measured by net absorption – in the region is forecast to remain positive from now through 2030.

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