Office Tenants Are Moving From The CBD To Nearby Areas On The Outskirts Of The City

To pursue better affordability and value, Singapore CBD office tenants are moving to city-fringe locations that provide Grade-A office spaces at lower rental rates.

 In “City Fringe Gems,” a research paper from Colliers International, it was discovered that the average monthly rent for Office spaces of Grade-A located in the city-fringe was $7.90 psf in 3Q2019, which is lower than the $10.08 psf average monthly rent in the CBD during the same period.

The report states that there has been an 18.4% increase in the rent of Grade-A office spaces in the city-fringe locations between 2Q2017 and 3Q2019, due to favorable demand-supply conditions. 

Additionally, the rent gap between the city-fringe locations and the CBD has widened from 8% in 2011 to 22% at present, as per the report.

Tricia Song, the Singapore head of research at Colliers International, has stated that the value proposition of city fringe business locations has improved significantly in recent years.

This is thanks to ongoing urban regeneration projects and the construction of new buildings by the government and developers. 

These locations offer affordable rents, high-quality infrastructure, and are strategically located near large residential areas, providing occupiers with easy access to a skilled labor pool. As a result, they offer excellent business space options.

Colliers has pinpointed three key areas in Singapore – Paya Lebar, Haborfront, and Alexandra – that have transformed the city-fringe office market by providing occupiers with an ideal mix of quality and cost-effectiveness.

For instance, the 13.5-hectare business district of Alexandra has undergone a renewal, and it now boasts the completed Mapletree Business City, an integrated business center.

The precinct of Alexandra, along with Alexandra Technopark, Alexandra Point and PSA Building provides more than 5 million square feet of commercial space. In Harbourfront, renovated structures include HarbourFront Tower Two and HarbourFront Centre 

Additionally, several other revitalization efforts have taken place in the area, includes: 

• Built-to-suit Bank of America Merrill Lynch HarbourFront.  
• Keppel Bay Tower
• HarbourFront Tower One 

When combined, these projects offer more than 1.6 million square feet of office space available for lease.

Paya Lebar’s deliberate decentralization strategy aims to establish a novel commercial center featuring office and retail buildings, as outlined in the 2008 Draft Master Plan. (See also: Paya Lebar Master Plan)

The successful launch of Paya Lebar Square in 2015, newly renovated Singapore Post Centre, and Paya Lebar Quarter (PLQ) this year have all contributed to the transformation of this region into a lively hub. 

With more than 1.6 million square feet of net lettable office space available in this entire precinct, Paya Lebar has emerged as an attractive destination for businesses seeking a prime location in Singapore. 

Song highlights that Paya Lebar stands out as the most accessible location with the highest quality office space, despite having slightly higher rental rates compared to the other two precincts.

The upcoming new launch, a freehold condominium The Continuum is in the area and boasts a convenient location in proximity to various amenities. Take a look at the location map here. 

Over the long term, Alexandra and HarbourFront are poised to benefit from the upcoming Circle Line final phase and the future development of the Greater Southern Waterfront.

Regarding investments, the city fringe Grade-A offices had a capitalization rate ranging from 3.7% to 4% in 3Q2019. In comparison, CBD Grade-A offices during the same period had a rate of 3.1% to 3.5%.

Jerome Wright, Colliers’ director, advises investors and developers to assess their portfolios and invest in selected city-fringe areas with potential for rental growth or capital appreciation. 

This advice comes as the city-fringe office market in Singapore continues to offer excellent value propositions, thanks to continuous urban regeneration and new building constructions. 

Wright’s insights highlight the need for investors to diversify their investments and identify areas that offer high growth potential.

With a limited supply, the city-fringe Grade-A office rental rates are expected to maintain a stable growth rate of 2.4% compound annual growth rate (CAGR) from 2019 to 2023. 

Strong transaction volumes between the second quarter of 2017 and the third quarter of 2019 drove a notable 16.5% increase in average capital values to $1,733 per square foot for the overall office market.

The office capital market is projected to benefit from favorable interest rates and significant capital allocation into Singapore.

With an increasing number of workspaces and job opportunities in the Paya Lebar, it is anticipated that there will be an increase in demand for rental units and rooms. 

The Continuum stands out as an attractive option for prospective residents who prioritize quality living and prefer to avoid long commutes, allowing them to enjoy their free time after work.