As per a Cushman & Wakefield report (2007): The Singapore office market has remained tight during 2007, with the CBD remaining the primary focus of occupier demand. The anticipated supply level for 2008 is fairly low and this will continue to move rents upwards. However, the rate of growth is likely to slow from the phenomenal levels seen in 2007, when rental levels rose by almost 78%.
Prime priorities
“The bulk of business we have been doing for the last six months is to find ways to reduce occupancy costs,” Donald Han, managing director, Cushman & Wakefield, Singapore, says.
Cost is a prime consideration for a lot of companies and so is the quality of the building. Han explains that many multinationals require large floor spaces that only certain newer buildings can provide. Some need multiple floors and they would rather be in a building that is 20,000 to 30,000 sq ft like one would see in the Marina Bay area or One Raffles Quay. Such buildings also have good backup power systems and efficient layouts that many multinationals need. The kind of business a company is in also determines, to a certain extent, the location of the company. Where competitors are located makes a difference too. Car park pricing impacts individuals more than companies, and Han doesn’t see it having so much of an influence on decisions regarding relocations.
Roy Chong, group director, Propnex Realty, says that the trend for companies (non-financial) is to move out of CBD to business parks or hi-tech buildings, as they satisfy pricing and corporate image though not the locality factor. “The popular ones are Changi Business Park to the east and International Business Park in Jurong East.” Chong says Tampines Central is another popular spot with a price range of S$9 per sq ft. He thinks it is rather the availability of season parking, not car park pricing, which plays a part in determining office space. He predicts office rents will keep rising till new sites come up, and companies will choose to relocate due to high rental costs or expansions. “For companies that need to expand, they may have the ability to pay the rentals, but they may not have any space.”
Agnes Tay, director of business space and office at Knight Frank, says many companies have started recognising the importance of attracting and retaining talent, and so, office location has become more crucial. “Talent in all industries are always looking out for intangibles like working environment, building image, convenience and amenities.”
She feels prime locations follow the movement of “prime activities” of finance. “It started in Shenton Way in the 60s and 70s and then shifted to Raffles Place from the 80s and now we see the trend moving to Marina South. Excellent accessibility and a prestigious address are the hallmarks of a prime location,” she says. Tay feels companies must be guided by their businesses (banks in Raffles Place, IT companies in Suntec Towers, etc.), support of professional services (where the company’s appointed lawyers, auditors, bankers are), rental budgets, and recruitment (availability of local staff).
Intelligent workplace systems are in for those who still want to be in Raffles Place and adjust to the higher rentals. “Converting common areas like pantry rooms or conference rooms, or opting for hot desking, where one work station is shared by two or three employees, has become popular,” Han says, stressing it has become impossible to continue to expand and take additional floors when rentals are at record levels. Companies are ready to reconfigure their with intelligent space planning layout so that there is more headcount over the same area.
Decentralisation
Moving certain operations out of the central financial area is another option. Banks like Stanchart, DBS, Citibank and Credit Suisse have already embarked on moving banking operations out of the main central district. Han explains that these banks expanded three years ago when office rentals were about 40% or 50% of what they are right now. As these companies grew, they became huge users of space and are now seeking ways to reduce occupancy costs, which is why they are moving backroom operations, such as payroll and accounts, to places like Changi Business Park. “Even if you are paying rentals of S$16 to S$18 per sq ft, by moving to Changi Business Park that charges S$3 to S$4 per sq ft, you would reduce occupancy costs at a blended average of about S$10 per sq ft,” Han points out.
Chong agrees that decentralising operations is becoming common. He also suggests that companies look into renovations or “fittings cost” when deciding to relocate as these could come anywhere between S$30 to S$50 per sq ft.
Alternative locations
Shophouses are fast becoming a popular choice for employers who need to be in the financial district but want to avoid huge rentals. Chong says shophouses increased as a ripple effect of rental increments in traditional buildings, and popular shophouses are in CBD, namely, Amoy Street, Telok Ayer Street, Tras Street and Boon Tat Street. Han says some of those who move out to occupy shophouses usually buy them by taking loans from banks. “The amount of interest would equate to S$6 or S$7 -- same as rentals – and it makes better sense to buy.”
Those looking to slash rental costs could also consider Beach Road (S$8 to S$10 per sq ft) or hi-tech industrial buildings (S$5 per sq ft). Han says tenants who can’t afford to be in Raffles Place now will move downstream to cheaper locations in the fringe area of CBD, such as in Clarke Quay. Tay adds they can also move farther where the office buildings are older with simple building specifications (S$3 to S$5 per sq ft).
“Hotspots are guided by lower rents and availability,” she adds, and mentions 991 Alexandra Road that was converted from former ITE to offices. “It offers a total area of 280,000 sq ft with rentals being S$5.50 per sq ft to S$7 per sq ft. That is a hotspot and was well taken up.”
Chong suggests that for companies worried only about prices, industrial estates such as Ubi or Kaki Bukit zone are ideal (S$2 to S$4 per sq ft), but warns he has come across companies that have moved to the Business Park and experienced employee resignation due to relocation.
More space for the CBD area
Han says that in such an economy, one can’t control revenue. “You can only control costs,” he says, and adds that the government is actively trying to address the space issue in the market by creating new decentralised zones to enable the working population and companies to keep from focusing too much on the prime central business district. Han also says many government agencies are moving from the central business area to create more space for the private sector to expand. The government has also released sites that were once polyclinics or public schools to private builders so companies can relocate to these sites.
There is hope that with the emergence of new land, the city will overcome the space shortage and companies will be able to establish themselves in a market that is more affordable and convenient. Until then, employers must seek ways to contain business costs by analysing their needs and adopting smarter ways at work.
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