Commercial CBD Buildings On Investors’ Radar
SINGAPORE – Commercial buildings within the city-state’s central business district (CBD) are expected to be on the cross hairs of real estate investors, according to a recent report from Colliers International entitled “Singapore Office Market: The Paradigm Shift”.
“Commercial buildings within the CBD are expected to receive increased investor interest, on the back of the government’s long-term rejuvenation plans, the CBD Incentive Scheme,” said Jerome Wright, the property consultancy’s Senior Direct in Singapore.
Launched in March 2019 by the Urban Redevelopment Authority (URA), the CBD Incentive Scheme incentivises landlords with higher plot ratios of 25 to 30 percent if they convert office buildings more than 20 years old into mixed-use developments.
Properties that are taking advantage of the scheme include the 12-storey Realty Centre in Anson precinct, which was acquired by The Place Holdings for S$148 million in April 2019 via an en bloc sale. Last week, the buyer announced that MCC Land has agreed to take part in the redevelopment.
“We can already see some of the smaller old buildings being redeveloped into mixed commercial and residential sites, not to mention the development of the Greater Southern Waterfront as well,” Wright pointed out.
He explained that the redevelopment trend could lead to a drop in office supply, but property owners will need to time their redevelopments.
“On one side, we expect an increase in rental rates due to the supply crunch with nearly 1.5 million sq ft taken out of the market and increasing demand from occupiers. On the other, we have some old buildings becoming irrelevant, not meeting occupiers’ future requirements,” Wright noted.
Moreover, Colliers believes that commercial buildings with eco-friendly features and better specifications would be leased out faster. Apart from having a lower vacancy levels, these properties are also expected to see higher rental rates because of prevailing supply & demand dynamics
“Refurbished buildings, or new Grade A office buildings are attracting large Institutional CORE funds. The events of 2020 has accelerated the shift for occupiers to move towards higher quality assets that meet the rising demand for health and sustainability,” he said, adding that this trend is expected to continue this year and beyond.
Furthermore, Colliers International is bullish on the prospects of Singapore’s office market, and it’s not just for the city-state’s CBD micro market.
“With Singapore taking a top spot as a potential world-leading technology hub and already hosting over U$60 billion valuations of unicorns, the office market’s future is bright.”
“Whilst there will be an immediate impact in demand for CBD office space, it is also likely to impact the office / business space on the CBD’s fringe, as occupiers seek more cost-effective options for mid to back of office operations,” added Wright.