Office property micro-markets in Singapore’s CBD faces renewal drive

Image credit: Colliers International

In assessing the six office property micro-markets in Singapore’s CBD. Colliers Research considered factors such as existing industry clusters, availability of office stock, accessibility, and rents.

Colliers International on June 21 released its Top Office Property Micro-markets in Singapore report, which examines the occupier profiles and identifies the most attractive office locations for the top six industry sectors in Singapore’s central business district (CBD).

The report builds on earlier research publications from Colliers which ranked Singapore as one of the top locations in Asia for technology, finance and law occupiers.

office property micro-markets
Image credit: Colliers – Evolving occupier trends and urban renewal drive change in six office property micro-markets in Singapore’s CBD

In assessing the six office property micro-markets in Singapore’s CBD – Raffles Place/New Downtown (Premium), Raffles Place/New Downtown (Grade A), Shenton Way/Tanjong Pagar, Beach Road/Bugis, City Hall, and Orchard – Colliers Research considered factors such as existing industry clusters, availability of office stock, accessibility, and rents.

Ms. Tricia Song, Head of Research for Singapore at Colliers International, said, “Singapore CBD office demand has historically been broad-based, driven by the core sectors of financial services, professional services, energy and shipping. However, we observed that technology firms and flexible workspace operators have taken up substantial amount of space in recent years – we estimate that they accounted for about 75% of net absorption in 2018, for instance. We expect such changing occupier trends as well as the ongoing rejuvenation and new developments within the city to continue to shape the various office micro-markets in the CBD.”

Given Singapore’s status as a global financial hub, it is perhaps unsurprising that the financial services sector occupies a lion’s share (42%) of total office space in the CBD, according to Colliers Research’s analysis of occupier profiles in each micro-market. The other relatively large space users are the professional services and technology, media and telecoms (TMT) sectors, followed by resources, energy and commodities, consumer, and flexible workspace companies.

Top office property micro-markets for various industry sectors

Colliers’ research found that existing clusters within each CBD office property micro-market signal favourable conditions relevant to each sector. Financial services, for instance, gravitate towards new buildings with large floor plates and premium specifications, and are less sensitive to rents.

  • Financial services: Historically, the majority of the financial companies are located in Raffles Place. With the shift of major banks and financial institutions into the newer premium buildings in New Downtown over the past decade, the Raffles Place/New Downtown (Premium) micro-market has grown to a 55% exposure to the financial sector. Raffles Place/New Downtown (Grade A) buildings, on the other hand, have a 48% exposure.
  • TMT and flexible workspace: TMT and flexible workspace sectors have been growing and they accounted for most of the net absorption in 2018 and 2019 year-to-date. In particular, flexible workspace stock has more than tripled since 2015. TMT and flexible workspace operators have the highest presence in Shenton Way/Tanjong Pagar, occupying 21% and 6% of the Grade A micro-market respectively.
  • Professional services: Professional services include legal and consulting firms, real estate companies, and executive search firms. Professional services companies have the highest presence in Raffles Place/New Downtown (Grade A) accounting for 24% of occupied space.
  • Resources, energy and commodities: Basic and natural resources firms, energy related companies such as oil & gas and coal companies, as well as commodities firms are most concentrated in City Hall accounting for 16% of occupied space.
  • Consumer: Consumer companies are concentrated in Orchard (38% of space) given that many have a retail shop in this micro-market.

Results from the study by Colliers Research showed that Raffles Place/New Downtown (Premium) is the top office location for financial services companies, given very strong existing cluster and availability of premium Grade A stock. Meanwhile, Raffles Place/New Downtown (Grade A) is the top location for professional services firms given the highest sector concentration and excellent accessibility.

Shenton Way/Tanjong Pagar, which has a relatively more well-balanced sector exposure, is ideal for TMT and flexible workspace operators for its modern new builds and high accessibility. Resources, energy and commodities firms are best located in City Hall where cluster concentration is considerably higher relative to other office property micro-markets, while enjoying good accessibility. Finally, Orchard remains the preferred office location for the consumer sector given the proximity to distribution channels.
Market implications and outlook

Colliers Research projects CBD Grade A office rents to grow 8% in 2019 and 5% in 2020 given tight supply and high pre-commitments. It expects supply in 2019-2021 to average 614,000 sq feet (57,000 sq metres) per annum or 2% of stock, versus 5% for last five years. This should keep vacancies tight in 2019-2021.

Driven by redevelopment and rejuvenation in the area, rents in Shenton Way/Tanjong Pagar could grow at the fastest rate on a 3- and 5-year horizon. New buildings such as Frasers Tower, Guoco Tower and UIC Building completed in 2016-2018 had raised the image and rents of the micro-market. Redevelopments including Afro-Asia Building and CPF Building (to be named ASB Tower) should raise rents further in 2020 when they are completed. Additionally, rental growth could be further supported by withdrawal of existing stock for redevelopment as landlords adopt the URA incentive scheme.

Mr. Rick Thomas, Head of Occupier Services for Singapore, Colliers International, said, “Occupier demands have evolved from the sole considerations of location, price/rent and basic amenities. Other factors that are becoming more important include flexibility, space efficiency, wellness and lifestyle amenities, and tenant experience. Landlords need to ensure that their portfolio remains relevant while occupiers should reassess their needs and explore alternative lease options early given the limited prime contiguous space, as well as considering flex and core™ strategies.”

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Written by Ravi Chandran


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