Large Tenants Relocate As Landlords Renovate Or Redevelop
SINGAPORE – Despite the city-state’s sluggish office rental market, some major tenants are still carrying out their relocation plans, reported The Business Times on Friday morning (4 December, SGT).
For instance, CIMB Bank is expected to relocate from the Singapore Land Tower as it’s understood to have rented over 50,000 sq ft at the adjacent office podium of 30 Raffles Place, a project that was recently renovated and was previously called as the Chevron House.
Boston Consulting Group will also move from the Singapore Land Tower to 79 Robinson Road, where it has leased the highest 2 office levels. This new project obtained its Temporary Occupation Permit (TOP) last April.
Although the departures will lead to vacancies at Singapore Land Tower, it could facilitate plans by the owner, United Industrial Corporation, to carry out major refurbishments as the commercial property’s large-scale renovation was last done over 10 years ago, noted experts.
“For some occupiers, moving into a new building, or a newly refurbished building, provides an opportunity to consolidate into a contiguous space and hence derive greater space efficiency – compared with being scattered over non-contiguous floors or partial floors at their existing premises,” commented Michael Tay, Executive Director at CBRE Singapore.
“Another factor driving relocations is the flight to quality. As also seen in most previous office downcycles, when rents in new buildings are deemed to be attractive enough, occupiers can justify the relocation expense.”
Experts also pointed that the redevelopment of ageing office buildings that has been partly encouraged by the CBD Incentive Scheme – which grants a higher plot ratio of 25 to 30 percent if a property owner redevelops qualified office projects over 20 years old into residential developments – has led to tenants in affected office properties to look for alternative premises.
For instance, Alibaba Group’s Lazada is presently renting 130,000 sq ft across 10 floors (including 30,000 sq ft occupied by Alibaba) at AXA Tower. As the office tower is poised for redevelopment, Alibaba and Lazada are in advanced talks to rent around 100,000 sq ft of office space at 5One Central in 51 Bras Basah Road. Alibaba and its subsidiaries are expected to move out late in 2021 prior to the start of AXA Tower’s redevelopment.
Notably, Alibaba Singapore recently acquired a 50 percent stake in AXA Tower, while a consortium led by Perennial Real Estate owns the remainder. Post-redevelopment, Alibaba Group will own most of the office space in the upcoming mixed-use project, and it’s expected to occupy it.
According to Tay Huey Ying, Head of Research & Consultancy at JLL Singapore, some tenants are relocating to clinch prime office space with more attractive rents. “That said, we also continue to see occupiers who upon lease expiry take the opportunity to right-size by releasing part or all of their space in order to manage cost pressures.”
Based on JLL’s data, average Grade A office rent in Singapore’s central business district (CBD) fell from S$10.48 psf per month in Q2 to S$10.08 psf during the third quarter. While this represents the sharpest quarterly rental decline since office rents peaked at S$10.81 psf in H2 2019, Tay thinks that the rental decline could potentially start moderating from Q4 2020.
“This assumes the sharp recovery in Singapore’s economy expected for next year materialises and the progress achieved thus far in containing the COVID-19 outbreak here will not be derailed, especially upon the progressive reopening of our borders.”
Although JLL expects grade A office rents in the CBD to contract this year, it’s likely not as bad as the 12 percent fall the property consultancy projected earlier.
