Big tenants trading places as building owners make big changes

Singapore

AMID the lull in the Singapore office leasing market, some occupiers continue to make relocation plans.

CIMB Bank has leased more than 50,000 sq ft in the office podium of 30 Raffles Place, formerly known as Chevron House, The Business Times understands. The development was refurbished recently.

CIMB Bank will be relocating from Singapore Land Tower next door. Boston Consulting Group is also expected to move from SingLand Tower to 79 Robinson Road, where it will occupy the top two office floors. This is a new development that received Temporary Occupation Permit in late-April this year.

While the departures may create vacancy at SingLand Tower, this may not be such a bad thing as it could facilitate the building owner United Industrial Corporation's plans to soon embark on a major revamp of the 47-storey office block which last had a major refurbishment more than a decade ago, say industry watchers.

CBRE Singapore executive director Michael Tay highlights a couple of factors that are motivating office tenants to selectively make relocation plans despite the pandemic.

"For some occupiers, moving into a new building, or a newly refurbished building, provides an opportunity to consolidate into a contiguous space and hence derive greater space efficiency - compared with being scattered over non-contiguous floors or partial floors at their existing premises.

"Another factor driving relocations is the flight to quality. As also seen in most previous office downcycles, when rents in new buildings are deemed to be attractive enough, occupiers can justify the relocation expense."

Analysts note that that the redevelopment of ageing office blocks in the CBD, partly spurred by a government scheme rolled out last year, is also causing tenants in affected buildings to scout for alternative premises.

An example would be Lazada, part of the Alibaba Group and currently operating in leased premises at AXA Tower near Tanjong Pagar MRT station. The building is coming up for redevelopment and Lazada/Alibaba Group are said to be in advanced negotiations for a lease at 5One Central at 51 Bras Basah Road. They are expected to occupy about 100,000 sq ft.

At AXA Tower, Lazada has a lease for 130,000 sq ft over 10 floors; this is said to include about 30,000 sq ft occupied by Alibaba.

The Alibaba entities including Lazada are expected to move out late next year, ahead of the commencement of AXA Tower's redevelopment.

This year, Alibaba Singapore took a 50 per cent stake in AXA Tower and will jointly redevelop the property with Perennial Real Estate-led consortium members who continue to own the remaining half stake.

Alibaba Group is expected to end up owning the bulk of the office space in the new mixed development, with a view to occupying it, BT understands.

The group had considered other locations in the financial district but relocating to 51 Bras Basah Road during the period of AXA Tower's redevelopment has some advantages. These include having contiguous space in a city-fringe building with good connectivity at a reasonable rental.

Moreover, flexible space operator JustCo is already in the building and this potentially provides flexibility for Alibaba Group to take additional space if needed.

The 11-storey property - flanked by Bras Basah MRT station on the Circle Line and Bencoolen station on the Downtown Line - is currently undergoing refurbishment, which is expected to be completed in the second half of next year. The asset is owned by ARA Asset Management and Chelsfield.

In the financial district, BT understands that CIMB Bank's lease will begin in early 2022 and is for an initial term of five years, with an option to renew for three years. The gross effective rental is likely to be S$9-plus per square foot per month, said sources.

CBRE, which acted for CIMB Bank in the leasing transaction, declined to comment.

CIMB Bank currently has a lease for about 70,000 sq ft at Singapore Land Tower; this is over two entire floors plus pockets of space over another eight levels or so. The lease is said to end in the fourth quarter of next year

The relocation will allow CIMB Bank to be on contiguous floors.

Over at 79 Robinson Road, Boston Consulting Group is expected to occupy at least two floors: levels 27 and 28. The monthly rental rate is likely to be in the low double-digit psf.

The two floors add up to about 46,700 sq ft. Dubbed "Sky Village", the space is curated for use by a single tenant.

There is some double-volume space; the spatial void was designed so that guests are presented with dramatic sea views as the lift doors open.

The 29-storey development was jointly developed by CapitaLand, Mitsui & Co and Tokyo Tatemono Co.

Tenants who have signed up for the building this year include Equinix, which will occupy slightly over 80,000 sq ft and move out of three existing locations: Robinson Point, 18 Cross Street and Mapletree Business City.

Also signed up this year in the same building are First State Investments and German Bank LBBW. All three deals are understood to have been brokered by JLL, which declined to comment.

Based on URA data, the Singapore office market islandwide saw negative net absorption of 81,000 square metres in the first nine months of this year. This is a reversal of the positive net absorption figures of 155,000 sq m in 2019 and 172,000 sq m in 2018.

JLL Singapore's head of research and consultancy, Tay Huey Ying, noted that some relocation deals are still going on, as occupiers take advantage of lower rents to secure prime space.

"That said, we also continue to see occupiers who upon lease expiry take the opportunity to right-size by releasing part or all of their space in order to manage cost pressures."

JLL's CBD Grade A average office rental value for Q3 2020 stood at S$10.08 psf a month, down 3.8 per cent from S$10.48 psf for Q2 2020. This is the sharpest quarter-on-quarter decline since rents peaked at S$10.81 psf in the second half of last year.

The rental value had posted q-o-q declines of 3 per cent in Q2 2020 and 0.1 per cent in Q1 2020.

Said Ms Tay: "There is potential for rental decline to begin moderating from this quarter onwards.

"This assumes the sharp recovery in Singapore's economy expected for next year materialises and the progress achieved thus far in containing the Covid-19 outbreak here will not be derailed, especially upon the progressive reopening of our borders."

She expects JLL's CBD Grade A average office rental value to end this year in negative territory, but probably not as bad as the 12 per cent drop JLL had forecast earlier.