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Published February 26, 2007

More office space likely for Phase 2 of MBFC

Move seen as latest market response to acute shortage of office space


(SINGAPORE) In a likely change of plan, the second phase of the Marina Bay Financial Centre (MBFC) is expected to have more office than condo space.

The MBFC: S'pore office rents expected to continue rising till 2010/2011 before glut sets in from new projects

BT understands that the change is prompted by strong demand from banks and other big financial houses scouting for offices in Singapore.

'The consortium is reviewing increasing the office component in Phase 2 of MBFC in light of increasing demand from the financial services industry,' said Robert Garman, Hongkong Land's director of commercial property (South Asia), in response to a query from BT.

'We're in discussion with prospects to lease about one million sq ft of offices in the development,' he added. Hongkong Land is a member of the consortium that is developing the MBFC.

BT understands that initially the ratio of apartments to office space for Phase 2 was to be about 2:1, premised on strong demand for waterfront homes as seen in the December preview of Marina Bay Residences under MBFC's first phase.

However, major global banks increasingly concerned about the office shortage in Singapore have expressed strong demand for offices in the development, leading the consortium to reverse the allocation of office and apartment space for MBFC's second phase, according to industry observers.

The consortium, whose other members are Keppel Land and Cheung Kong Holdings, announced earlier this month it had exercised the option to buy the rest of the Business & Financial Centre site for $883.8 million, reflecting an effective unit land price of $435 per square foot (psf) of potential gross floor area.

Market watchers expect the two office towers of MBFC's first phase - which add up to about 1.65 million sq ft net lettable area - to be marketed together with the office tower in the second phase, which is expected to offer another one million-plus sq ft of offices.

The consortium developing Marina Bay Financial Centre also developed One Raffles Quay (ORQ) nearby which comprises two towers. Completed last year, the towers add up to slightly over 1.3 million sq ft of net lettable area. The last office unit at ORQ, said to be about 4,000 sq ft, was leased at a gross monthly rent of about $12 psf a month, nearly three times the effective rental when leasing for ORQ began in 2004, BT understands.

Responding to the office shortage building up in Singapore, the government is offering more sites in the first half of 2007 for office developments or projects with minimum office components. These include a prime plot behind One Shenton Way, and the former NCO Club on Beach Road.

However, office industry players say any new developments on these sites may come too late, as they will be ready only after the first office tower at MBFC is completed - in early 2010.

'Office rents will continue to rise till around 2010/2011, and then there could be a glut again as new projects are completed,' predicts an industry player.

Agreeing, the research head of a major foreign stockbroking house said the authorities probably erred on the side of caution by not offering more Grade A location office sites earlier, at least through the reserve list. 'So we'll have a supply shortage for the next few years and continued rental escalation - which could lead to some global financial players expanding their operations elsewhere instead - followed by the completion of a huge amount of office space, and rentals sliding after that.

'By not releasing land on a regular basis, they have exacerbated the cycle,' he added.

Calling for a calm reaction to the situation, CB Richard Ellis executive director Moray Armstrong said: 'The cyclical nature of the office market requires cool heads and prudence, in terms of how the government plans, and the private sector reacts, in addressing the shortfall in the short term.'

'In the near term, we need to look at improving supply of offices in decentralised locations and allowing more leeway for using business parks as offices,' he added.