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More banks may cut back on office space amid weakening outlook

RBS, ANZ, and BOAML are among those contemplating this; analysts say Grade A office space being let go will still find replacement tenants
Tuesday, March 22, 2016 - 05:50

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RBS, which is exiting most of its businesses in Singapore, is said to be looking to give up 2-1/2 out of its three remaining floors in the South Tower of One Raffles Quay in the Central Business District. It used to occupy 130,000 sq ft on four levels there.

Singapore

BANKS look set to continue shedding excess office space in Singapore amid a cautious business outlook.

Royal Bank of Scotland (RBS), Australia and New Zealand Banking Group (ANZ), RHB Securities and Bank of America Merrill Lynch (BOAML) are among those contemplating ways to save costs by trimming space.

Ivan Tan, a Standard & Poor's (S&P) analyst, said: "The cost rationalisation measures are intended to offset softer revenue growth in 2016, the latter being driven by external headwinds and expectations of slower loans growth. The focus on cost efficiency will enable banks to defend their bottom line."

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This cutting back on office space comes amid a large number of job cuts, mainly from investment banking and trading, reflecting stiffer regulations and challenging capital market conditions, he added.

RBS, which is exiting most of its businesses in Singapore, is said to be looking to give up 21/2 floors of its remaining three floors of space in the South Tower of One Raffles Quay (ORQ) within the Central Business District. It used to occupy 130,000 sq ft on four levels there, but then sublet one floor to its former private banking unit Coutts last year, after having sold off Coutts' international business.

RBS has also exited One George Street, where it used to occupy two floors (60,000 sq ft), ahead of the expiry of its lease at the end of this month. Last July, the bank said it planned to reduce its presence in Singapore to a trading-and-sales operation, to be backed by a staff strength of about 200.

It is shutting down its other Singapore businesses, such as in corporate banking, transaction banking, and debt capital markets.

Over at Ocean Financial Centre (OFC), ANZ is expected to give up a floor, amounting to around 20,000 sq ft or 9.5 per cent of its front-office space in the building - a move that comes as part of its lease renewal due in the third quarter of this year.

Industry watchers suggest that the bank is likely to reduce its space usage from about 210,000 sq ft across nine floors to 190,000 sq ft on eight floors. This is expected to free up Level 18.

When contacted, ANZ Singapore's chief operating officer Lachlan Halstead said: "We are in discussions with the landlord and no lease agreements have been finalised."

Earlier this month, Reuters reported that ANZ closed its business lending to small and medium-sized enterprises (SMEs) in five Asian markets, cutting around 100 jobs; the five markets are Singapore, Vietnam, Hong Kong, Indonesia and Taiwan.

Industry players note that even with the space reduction, the bank will remain the largest occupier of OFC. Its sign is on the building.

ANZ also occupies around 70,000 sq ft for backoffice operations at Mapletree Business City 1 in Pasir Panjang. The lease there is not due for renewal for another four to five years, The Business Times understands.

Another tenant at OFC said to be mulling shrinking its space is the stockbroking arm of Malaysian bank RHB. RHB Securities, now occupying Levels 8 and 9, is said to be thinking about whether to give up the 23,000 sq ft on the eighth floor.

A spokesman would only say that RHB Securities Singapore was still operating in the building.

Over in Telok Blangah, BOAML is said to be planning to give up the top floor of the six-storey HarbourFront building that bears its name. The bank has five levels of office space, adding up to 216,561 sq ft, all of which is leased to BOAML. The lease expires in November next year.

BT understands that most of the 46,000 sq ft space on the top floor had been used for backroom operations in support of the group's non-US wealth management business, which the bank sold off to Julius Baer in 2012. BOAML also consolidated pockets of space on various floors in the block over time and reconfigured some areas.

Market watchers, reacting to the contemplated shedding of space by banks, said they are not surprised by this trend, and are not unduly alarmed by it.

One office property market observer said: "There are some leaks in the dam, but it's not like the dam is about to burst."

Much of the excess space that is coming into the market is in premium-quality office buildings that were completed under 10 years ago. With their Grade A specs and prime CBD locations, they can attract replacement tenants.

For example, the 21/2 floors at ORQ South Tower which RBS is planning to give up are being eyed by a replacement tenant, which in fact wants slightly more space that that.

Industry players recall that pre-global financial crisis and during the strong recovery post-crisis in 2010 and 2011, most of the big foreign banks leased substantial amounts of office space in Singapore under their ambitious Asian expansion strategy; Singapore is the regional headquarters for the Asian operations of several of these banks.

After the crisis, banking regulations were tightened, meaning that banks needed a lot more capital to operate. It has become more expensive for them to do business.

China's economic slowdown and the hit from falling commodity prices have also dampened the banks' business, and with business contracting, cost cutting is high on their agenda.

However, such external challenges are not necessarily the trigger for an exercise in "rationalising" space.

Standard Chartered Bank, for instance, had always planned to consolidate its office space in two locations: Marina Bay Financial Centre (MBFC) Tower 1 and Changi Business Park (CBP), down from eight locations before 2010.

Once the second wing of its back office at CBP was completed last year, it moved more than 1,000 staff there. When it moved into MBFC Tower 1 in late 2010, it had taken up 512,000 sq ft on the 24 floors; today, it uses 414,000 sq ft over 20 floors.

A spokeswoman said: "There are currently no plans to sublet space at MBFC. However, the bank is continuously reviewing its space requirements against its real-estate portfolio."

The bank has also sublet approximately 52,000 sq ft of space at Six Battery Road, where it has a lease for 129,000 sq ft until 2020. This extra space was a result of the plan to consolidate operations in two locations, the spokeswoman added.

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