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Office Market Review

Q3/Q4 2020

The full effects of Covid-19 have yet to filter through the office leasing market, although there is clearly a growing trend for companies to take co-working space, as a temporary measure, until businesses can evaluate the full impact of the virus…

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Singapore Office Market Review OCTOBER 2020

Office Market Review
Q3/Q4 2020
Published: 12 October 2020

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The full effects of Covid-19 have yet to filter through the office leasing market, although there is clearly a growing trend for companies to take co-working space, as a temporary measure, until businesses can evaluate the full impact of the virus. Face rents / asking rates have altered little, but we have witnessed landlords being far more flexible with their negotiations to offer attractive average effective rates.

Few companies are expanding in this economic climate, but quite a few are rationalizing their space. Some are downsizing / ‘right sizing’ but there is no mass exodus from conventional office premises. For those companies looking to right size, much will depend on when their lease expires. Many still have several years to go on their leases, which means they are reliant upon finding a replacement tenant. This will take time to trickle down from the top – for example those companies looking to right size from 8,000 sq ft to say 5,000 sq ft, need to find a company looking to downsize from say 12,000 sq ft to 8,000 sq ft.

Subleasing surplus space is usually out of the question. There is no doubt that the weakening of demand will put pressure on rates and we expect rentals to soften by around 8% during the course of 2021. Demand however is still there and will be supported by increased interest from Hong Kong firms, as well as forced displacement of tenants from buildings such as Fuji Xerox Towers, AXA Tower and Central Mall. There may be more staff working from home, which in theory should result in a reduction in size requirements, but those staff that are still working in the office will require larger space to comply with social distancing rules, hence the downsize might not be as dramatic as first envisaged.

Supply / Demand

Despite tight supply, leasing activity in Raffles Place has been surprisingly brisk, particularly for medium-sized users. Larger space users will still have to look elsewhere such as New Downtown until CapitaSpring is ready around Q2/Q3 2021. Average rental rates range from $9.00 to $12.00 per sq ft, although premium schemes such as CapitaSpring and One Marina Boulevard will be higher.

Buildings with the widest choice of units available include Republic Plaza, 30 Raffles Place, PLUS, 55 Market Street and Income@Raffles. One Marina Boulevard will have several floors coming available in Q2 next year, when Singapore Workforce Development Agency relocate to new premises.

This location has always been a popular district because of it’s close proximity to Raffles Place and large variety of buildings available, covering a wide budget spread. Some of the more recent noteworthy deals in the location include The State Bank of India relocation from MYP Plaza to take the two penthouse floors at 80 Robinson Road, Ricoh relocating from Visioncrest Commercial to lease a whole floor at Prudential Tower and Grandrich Corporation relocating to occupy a whole floor at Samsung Hub.

In terms of supply, Afro Asia iMark is the only new scheme for 2021 in this district and completion has been delayed until April/May 2021. There is also good choice and a wide variety of units at OUE Downtown 2 and Robinson 77.

Demand: It was recently announced that Allianz will be relocating their entire operation from Asia Square Tower 2 to 79 Robinson Road, which will free up some 80,000 sq ft in this scheme. The other major leasing transaction in this district was Amazon leasing some 90,000 sq ft in Asia Square Tower 1, who will be relocating from Capital Square.

Supply: One Raffles Quay North Tower has 10 whole floors (each 19,300 sq ft) coming onto the market in Q1 2021 as a result of the relocation of UBS to their own building at 9 Penang Road/Orchard. Asia Square Tower 2 has several low-rise floors, each 30,000 sq ft, coming available as a result of Allianz’s relocation and MBFC Tower II has large space available.

This location has been unusually quiet this year partly because the Southern Corridor /CBD Incentive has made many buildings ripe for redevelopment. It has already been announced that Fuji Xerox Towers is due for redevelopment next year, as is AXA Tower and other buildings which are potential targets for such redevelopment include 78 Shenton Way and ABI Plaza.

Demand: Guoco Tower stole the headlines recently with Toyota Motors leasing one whole floor (relocating from nearby Twenty Anson) and QBE Insurance leasing another floor (relocating from One Raffles Quay). Demand in this location was boosted by many tenants displaced from Keppel Towers choosing to remain in the area, with 79 Anson Road, Anson House and 78 Shenton Way being the main beneficiaries.

Supply: Guoco Tower is still one of the most prestigious developments but with a price tag to match i.e. up to $12.50 per sq ft and now there is quite a variety of sizes to pick from. 79 Robinson Road is an excellent scheme which is now 75% committed, so rents will be edging up. Springleaf Tower and Anson House both offer quality office space at very good value for money.

Demand: Odeon Towers has been one of the busiest buildings in this location and new tenants here include Panduit Singapore who leased one floor, relocating from Millenia Tower, Nu Skin secured a floor, also relocating from Millenia Tower, and earlier this year Rysense leased a floor, relocating from Peninsula Plaza. The other whole floor letting was to Infinitum Financial Advisory.

Spotify has just secured 1½ floors (37,000 sq ft) at 5One Central (51 Bras Basah Road). Suntec City is always in demand because there are so many facilities in the scheme and is benefiting from an upgrade. New tenants include Neste Singapore from Raffles City Tower, Horangi Cyber Security and Yonyou Singapore from Shaw Towers.

Demand: Movement on Orchard Road has been limited because of the high occupancy rate of most buildings. 111 Somerset has been active with new tenants including Softbank Robotics. Linksure Networks relocated here from The Heeren, purchasing a floor in the Devonshire Wing of the scheme. Singapore Power leased a whole floor (22,000 sq ft) at Haw Par Centre. EE Capital leased the penthouse floor of The Heeren.

Supply: 111 Somerset and Visioncrest Commercial still offer the largest unit sizes for lease. Shaw House and Goldbell Towers probably offer the best value for money. Wheelock Place remains the premium building in the location with Ngee Ann City, Wisma Atria and The Heeren having the widest choice of upper mid-range units.

Demand in this sector has been limited which is puzzling because these locations often offer the best value for money of all categories. UE Square secured a few large tenants namely Collins Aviation (from Suntec City) and TPG Capital (from UOB Plaza 1). The Thomson / Novena area has been popular and Great World City has seen reasonable activity. Supply – there is ample choice in most ‘edge of CBD’ districts.

Demand for office space in decentralized East has been focused in the Paya Lebar area, where the latest headline deal is Maersk Shipping leasing around 50,000 sq ft in Paya Lebar Quarter (relocating from Southpoint). The largest deals in decentralized West are Prudential Assurance leasing seven floors in UE BizHub West and Fuji Xerox leasing 60,000 sq ft in Mapletree Business City.

Supply: There is still ample choice of space in the Paya Lebar area including Paya Lebar Quarter, Singapore Post Centre and Paya Lebar Square. In the West there is still a good choice of space in PSA Building, UE BizHub West and Harbourfront Centre.