Commercial Sites With Shorter Leases

Commercial Sites With Shorter Leases Unlikely To Impact CBD Office Rents

SINGAPORE – Rents of office space, especially those located in the suburbs, could see downward pressure if the authorities will introduce more commercial sites with lease tenures of under 99 years, reported The Business Times on Tuesday afternoon (12 April, SGT).

However, Grade A buildings in Singapore’s central business district (CBD) are unlikely to face stiff competition from these shorter-tenured spaces, property experts told the news outlet.

For instance, Colliers’s Research Head explained that the release of commercial sites with shorter leases is unlikely to affect CBD office rents as tenants place more importance on the relative prestige and convenience of such commercial properties rather than possible cost savings from office space with lower rents.

Moreover, Cushman & Wakefield Singapore’s Research Head Wong Xian Yang does not expect any freshly released sites with shorter leases to have an effect on the upward growth of office rents in the medium term, as new office stock would still need to be built up.

“Considering the sale process and construction period, future developments would only be completed after 2027,” he noted.

Wong also pointed out that the number of commercial sites to be rolled out in the CBD will likely be limited amidst the government’s plan to decentralise commercial activities away from the city centre and to build workspaces closer to residences. New commercial sites are also expected to be released gradually to prevent a future oversupply.

“As such, the overall impact on CBD Grade A rents may be limited,” he concluded, adding that if shorter-tenured commercial sites become more prevalent, it will just increase the value of longer-tenured commercial land, as the latter will be viewed as scarcer.

However, Savills Singapore’s Executive Director of research and consultancy Alan Cheong believes that there could be a possible bad effect if the tenure of the land lease is equivalent to the economic life of a Grade A tower.

“If the length of the ground lease is, say, 50 years, a top-quality office building can still be constructed and if this is located in the CBD, it will be a competitor to similar-grade office buildings in the vicinity,” he expounded.

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