Published October 2, 2008

New business park space looms over CBD

New supply over next 5 years projected at about 7.8m sq ft: CBRE


(SINGAPORE) With the Singapore market still digesting the fact that there is about 10.2 million sq ft of office space in the pipeline, news that there is also substantial business park space coming is not likely to go down well.

According to CB Richard Ellis, projected new supply of business park space over the next five years is about 7.8 million sq ft. This includes developments like The Icon@International Business Park, Solaris, Mapletree Business City, and Centric Singapore.

CBRE also believes 67 per cent of this has already been pre-let.

By comparison, only about 25 per cent of future office supply is thought to be pre-let.

While certain conditions apply before anyone can move into a business park space, it has become increasingly clear that businesses themselves have no qualms about moving to the outskirts of the city. Already, Changi Business Park has attracted MNCs like Citigroup, Standard Chartered Bank and Credit Suisse.

CBRE executive director (office services) Moray Armstrong added that many new leases in business parks 'are in motion', boosted by the availability of quality business parks.

'The business parks have evidently been the sweet spot for many occupiers over the past 12 months,' he added.

And business parks, which Mr Moray describes as a 'hybrid' of traditional office space and high-tech industrial space, is set to evolve even more.

While Changi Business Park is characterised by individual developable land plots available for end users or developers to construct build-to-suit corporate buildings, Mr Armstrong reveals that the upcoming 1.7 million sq ft Mapletree Business City in the Alexandra vicinity will be a more office-like integrated precinct including retail space under single ownership. It is also just minutes from the CBD.

And the concept is proving to be popular as over 400,000 sq ft of pre-lease deals have already been done ahead of completion in H2 2010.

Demand for business park space is likely to grow at the expense of standard office space. Business park rents, at an average $3.15 psf per month in Q2 2008, are considerably lower than average prime rents of $16.10 psf per month.

But while Mr Armstrong believes that business parks will certainly compete to an extent and will slightly dilute overall office demand, he said: 'Nonetheless, we do not expect this to impact the office sector significantly.'

He added: 'There is far less speculative business park development as a rule. Most projects that are being built are pre-let or built-to-suit.'

According to CBRE's analysis, Grade A office space vacancy remained tight in Q2 '08 at 0.6 per cent. However, vacancy rates for the CBD fringe rose significantly from 4.6 to 7 per cent.

For the same period, vacancy rates for decentralised areas dipped to 1.6 per cent from 3 per cent. CBRE noted there was 'heightened interest' in the Alexandra/Harbourfront micromarket.

Interestingly, new supply could also have a diluting effect on the business park space segment as well. JTC's Q2 '08 quarterly facilities report reveals that its occupancy level for its business park space declined marginally by 0.4 percentage points quarter-on-quarter to 94.3 per cent. This was partly attributed to new supply from Fusionopolis which saw gross allocation of about 450,000 sq ft of space.

UBS Investment Research estimates that financial firms occupy 20 per cent of CBD offices and 30-50 per cent of the prime buildings within it.

UBS does not expect major job losses here from the fallout of the US financial crisis. Losses, if any, will only occur in 2009. Still, it said that if even between 1.5-6 per cent of the estimated 156,900 financial sector jobs are lost, it could equate to a drop in demand in office space of between 243,000 and 971,000 sq ft.