Ravi Chandran
Rising appeal of city fringe business hubs as decentralisation strategy gains traction with corporate occupiers
- Colliers identifies three city fringe business hubs – Alexandra, HarbourFront, and Paya Lebar – as the most attractive city fringe business locations in Singapore
- Rental gap between City Fringe Grade A offices and that of the CBD has been widening since 2011, from 8% to the current 22%
- City Fringe Grade A offices offer a cap rate of 3.7-4.0%, stable rental growth outlook of 2.4% CAGR in 2019-2023
Colliers International today released its latest research report City Fringe Gems which evaluates the merits of city fringe business hubs in Singapore and identifies the most attractive commercial precincts outside of the central business district (CBD).
Colliers Research noted that rising rents and tight vacancies within the CBD have resulted in the office market seeing a shift toward flight-to-value, as occupiers increasingly seek alternative city fringe locations that not only meet their evolving business needs but also offer greater affordability and value.
Data tracked by Colliers Research, showed that the average Grade A office rent in the City Fringe – at SGD7.90 per square foot per month (psf pm) – is now 22% lower than the SGD10.08 psf pm in the CBD. In fact, the rental gap between the City Fringe and the CBD has widened from 8% in 2011 to the current 22%.
Ms Tricia Song, Head of Research for Singapore at Colliers International, said, “Business locations in the city fringe have strengthened their value proposition considerably in the past years with new builds as well as ongoing urban regeneration efforts undertaken by the government and developers. These locations offer quality business space with reasonable rents, good infrastructure, and are closer to sizable residential enclaves, which provide a ready talent pool for occupiers.”
City Fringe Gems
In particular, Colliers Research has identified three city fringe business hubs – Alexandra, HarbourFront and Paya Lebar – that have reshaped Singapore’s fringe office market, at the same time offering an optimal quality and price mix for occupiers.
• Gem 1: Alexandra Precinct
Mapletree Business City (MBC), an integrated business hub comprising eight blocks of business space, is the result of the rejuvenation of the 13.5-hectare Alexandra Precinct which started in 2008. Fully completed in 2016, MBC, together with neighbouring buildings including PSA Building, Alexandra Technopark and Alexandra Point offers over 5.0 million sq feet (473,000 sq metres) of business space, some with Grade-A office specifications.
• Gem 2: HarbourFront Precinct
Rejuvenation of the HarbourFront precinct into a lifestyle and business hub started in 2004. With the refurbishment of the former World Trade Centre into HarbourFront Centre and the former Singapore Cable Car Tower into HarbourFront Tower Two, as well as further developments of HarbourFront Tower One, Keppel Bay Tower and the Built-to-Suit Bank of America Merrill Lynch HarbourFront, the precinct offers in excess of 1.6 million sq feet (149,000 sq metres) net lettable area (NLA) of office space.
• Gem 3: Paya Lebar Precinct
Paya Lebar Central was designated under the 2008 URA Draft Masterplan to be transformed into a vibrant commercial hub with office and retail developments as part of the Government’s decentralization strategy. With the opening of Paya Lebar Square in 2015 and Paya Lebar Quarter in 2019, and together with the redeveloped Singapore Post Centre, the precinct currently offers more than 1.6 million sq feet (153,000 sq metres) NLA of office space.
Ms Song added, “Among the three precincts, we believe Paya Lebar have the most to offer in terms of accessibility (proximity to Paya Lebar MRT station which is an interchange for the East-West line and Circle line) and availability of quality office stock (availability of space in Paya Lebar Quarter), although rents are relatively higher than the other two precincts. Meanwhile, in the longer term, we expect the Alexandra and HabourFront precincts could benefit from improved accessibility from the closing of the Circle Line MRT loop and more infrastructure from the development of Greater Southern Waterfront, which extends from Pasir Panjang to Marina East.”
Investment Outlook
Colliers Research believes city fringe business hubs offers good investment prospects in terms of rental growth and capital appreciation, particularly in areas zoned as part of the Government’s urban transformation plans.
Currently, City Fringe Grade A offices offers a cap rate of 3.7%-4.0% as of Q3 2019, compared to 3.15%-3.50% for CBD Grade A offices.
City Fringe Grade A rents have climbed 18.4% year-to-date Q3 2019 since Q2 2017 to SGD7.90 (USD 5.72) per sq foot per month, driven by benign demand-supply dynamics. Going forward, we forecast stable rental growth of 2.4% compound annual growth rate (CAGR) from 2019-2023 (4% in 2019 and 2% in 2020) as supply remains tight.
Similarly, average capital values of City fringe Grade A offices rose 16.5% since Q2 2017 to SGD1,733 psf as of Q3 2019, driven by robust transaction volumes for the overall office market.
Jerome Wright, Director of Capital Markets at Colliers International, said, “We remain optimistic on the capital markets given the favorable interest rate outlook and the large capital allocation to Singapore. We recommend occupiers to consider value options within the city fringe, particularly Alexandra, HarbourFront or Paya Lebar, which are zoned as part of the Government’s urban transformation plans. Developers and investors can also review their portfolios and diversify into selective City Fringe areas with rental growth or capital appreciation potential.”
Mr Paul Ho, chief mortgage officer at iCompareLoan said, “the three city fringe business hubs identified in Colliers’ research report City Fringe Gems have good potential because the neighbourhoods themselves are going through rejuvenation. The areas are also featured prominently in the URA’s Draft Masterplan 2019. All these make the areas a value proposition for savvy investors who are looking for long term returns.”
