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A Second Wave of supply that will transform the CBD

New opportuinities for tenants as Grade A office space increases by 4m sq ft in 2016.

THE Singapore office leasing market is approaching its "Second Wave", another fundamental shift as the Central Business District (CBD) enters the next phase of its transformation with the supply of nearly four million square feet of prime Grade A office space in 2016.

This follows the First Wave, which took place between 2010 and 2012 when the new premium Grade A office towers dramatically transformed the Marina Bay district.

This Second Wave will provide tenants the opportunity to capitalise on the new supply and upgrade their offices to drive their company's talent, brand and profit initiatives.

The First Wave saw the Singapore office market expanding at an exponential pace between 2010 and 2012 when approximately six million sq ft of new office space was delivered to the CBD. The strategic move by occupiers to consolidate and upgrade their offices provided strong leasing commitment for these landmark projects such as Marina Bay Financial Centre, Ocean Financial Centre and Asia Square, driving up the average annual net absorption to 1.9 million sq ft between 2010 and 2012, nearly double the 10-year average annual absorption of 1.1 million sq ft.

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Major occupiers in the financial, legal, resource and technology sectors leveraged on the market cycle to strategically grow their businesses.

In more recent years, however, companies were constrained by a lack of choices in the CBD but now the market will provide options and become favourable for tenants to consolidate and relocate. With new high-quality supply and rents reaching the bottom of the cycle, there is a short window of opportunity for tenants to secure flexible terms over the next six to12 months.

As the pre-commitment rates for major CBD projects steadily increase, Marina Bay rents are likely to stabilise at around S$9.50 per square foot per month through 2016, and see a healthy rebound of between 17 and 20 per cent by 2018/2019, assuming a moderate growth in the global economy.

It is highly unlikely for Singapore to see another opportunity like this in the medium to long term following this Second Wave. We forecast the Second Wave of demand next year will centre around tenants who did not move in the last cycle and would have the opportunity to capitalise on market conditions.

Based on Cushman & Wakefield data, more than 50 large tenants each occupying over 25,000 sq ft of space have not moved in nearly a decade, totalling over 4.2 million sq ft. The Second Wave could present the best opportunity for these companies in the next decade.

Tenants seeking a "flight to quality" strategy could well consider new mixed-use developments including Marina One, Guoco Tower and DUO, which provide efficient and modern space options for tenants in different districts.


For large office users requiring more than 50,000 sq ft, sourcing for contiguous space is critical to efficiency productivity - but this can be challenging at times. With an increasing corporate focus on the need for space efficiency and productivity around their building design, occupiers may need to move to new developments with good designs such as large column- free floor plates of about 30,000 sq ft - providing tenants with great flexibility to configure work spaces.

Sustainability has also become a must for tenants, and developers are meeting these needs through features such as the Biodiversity Garden at Marina One and the sculptural funnel at CapitaGreen. Green building features are increasingly becoming a standard in the new developments.

New office projects are also increasingly centred around integrated mixed-use developments comprising offices, residences, retail podium and even hotels, which cater to the lifestyle focus of employees.

A strong corporate focus on talent, brand and profit has become more important than ever in this new technology-enabled environment. When implemented and supported in the right way, as part of a wider strategy, the office environment will have the ability to attract, harness and motivate the best talent. The development should represent the tenant's brand values, align with the corporate image and drive the sustainability agenda.


Singapore maintains its attractiveness as a core market, and it will continue to be the preferred destination for regional headquarters.

For the first quarter of 2015, Singapore attracted 87 foreign direct investment projects, making it one of the most popular destination cities in the Asia-Pacific region, according to fDi Markets.

Besides its business-friendly environment, Singapore is often complimented for its high network readiness, sound investment potential and ability to attract, develop and retain its talent pool.

The resounding victory at the recent General Election (GE) 2015 with the People's Action Party winning 70 per cent of the vote share nationwide sends a positive signal to both international investors and domestic businesses. With China's slowdown impacting Asia generally, business sentiment has been weighed down by economic concerns. The stronger-than- expected mandate should inject confidence and maintain Singapore's edge as one of the leading markets to do business in as the outcome of the GE provides political stability and policy continuity.

Total Grade A net absorption in the CBD for the first half of 2015 was relatively strong at 407,000 sq ft. While macroeconomic uncertainties and the supply overhang pose challenges to the office leasing market in the short term, opportunities abound for both landlords and tenants.

Landlords are better able to retain existing occupiers as cost-conscious tenants are finding it more favourable to renew their leases and save on fit-out costs.

For tenants with the budget to relocate, the record four million square feet of Grade A CBD space entering the market in 2016 is a one-off opportunity for them to secure space in one of the upcoming premium developments which will help to drive their business forward for the second half of the decade.

In summary, we believe that Singapore is backed by sound fundamentals as a core investment market. Grade A capital values suggest net yields for investors are between 3.5 and 4 per cent, which could inch upwards once the US Federal Reserve commits to raising interest rates.

We believe capital values in the office segment are hovering near the peak for the current cycle and will track rental growth going forward. While owners might want to take a more cautious stance by cashing out at the current price level, institutional investors, on the other hand, may view Singapore as a safe haven and stay invested in its trophy assets given their long-term investment outlook.

  • The writer is the managing director of Cushman & Wakefield Singapore