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Marina One gains from 'flight to efficiency'
PRE-COMMITMENT leases and rents for upcoming prime offices are picking up as occupiers are warming to these upcoming swanky buildings with large floor plates in a "flight to efficiency".
Swiss private bank Julius Baer has signed a lease at close to double-digit rent for a "high density floor" spanning 100,000 square feet at Marina One. Julius Baer is slated to give up its 72,000 sq ft of space spread over two floors at Asia Square Tower 1 when it moves into Marina One, which will be completed next year.
At another integrated project, Tanjong Pagar Centre, a recent flurry of office leases inked has raised Guoco Tower's pre-commitment leases to over 70 per cent for its 890,000 sq ft of prime Grade-A office space. This signals a remarkable pace since January when the pre-commitment level was only 10 per cent.
Effective rents at Guoco Tower have also ranged from S$7.50 per square foot per month (psf pm) to over S$10 psf pm, according to sources.
Developers of Marina One and Tanjong Pagar Centre, M+S and GuocoLand respectively, declined to comment on their leasing deals nor offer rental details.
But BT understands that ING, which now occupies 70,000 sq ft at Republic Plaza, is in advanced negotiations for a similar amount of space at Guoco Tower.
Sources also said that Guoco Tower had of late secured tenants such as Palo Alto Networks, which is moving out of its 20,000 sq ft space at Millennia Towers to take up some 36,000 sq ft at Guoco Tower.
Itochu Singapore, currently at Republic Plaza, is taking up 28,000 sq ft at Guoco Tower, while Amadeus, a global IT solutions provider for the travel industry that now occupies over 20,000 sq ft at Parkview Square in North Bridge Road, is said to be taking up a lease for 36,000 sq ft at Guoco Tower.
Meanwhile, the new UIC Building has just secured its first pre-commitment lease from JustOffice, which will open serviced offices there spanning 40,000 sq ft.
Such steady absorption marks good news for the market amid the completion of some 3.5 million sq ft of new office space within the next 12 months. But market watchers note that effective rents for most leases inked are still in the single-digits for prime Grade-A office in the CBD after factoring in incentives such as rent-free periods.
"With economic uncertainties and businesses not growing, rents will be kept in check," said Calvin Yeo, head of office at Knight Frank. Recent leasing activities have been driven by upcoming lease expiries, which will soon free up a lot of secondary space especially in older buildings.
Data from Cushman & Wakefield shows that the weighted effective rents in Marina Bay area stood at S$9.56 psf pm in the second quarter, a 27.7 per cent fall from the Q1 2015 peak, while that in the Shenton Way/Tanjong Pagar area was S$7.65 psf pm, about 10.1 per cent below the Q1 2015 peak.
Cushman & Wakefield research director Christine Li observed that over the last three decades, weak office absorption seems to happen only when there is a crisis. "In the absence of an external shock, the office absorption tends to be quite stable despite periods of high office supply. This could imply that the underlying demand for office space in Singapore is still healthy, and the city state always has the capacity to absorb the supply over time."
With office tenants relocating from older buildings into newer and more efficient ones, CBRE executive director for office services Michael Tay projects a rental trend divergence.
While rents in new buildings will edge up, older buildings will have more competitive rents in the next 12-18 months, Mr Tay said. Commenting on Guoco Tower, he noted that its retail, hotel and F&B offerings as well as a direct link to the MRT are attractive to tenants.
Large floor plates in new developments are a draw for companies seeking workspace flexibility and efficiency, industry players noted. Duo Tower, an M+S project, offers the largest floor plate in the Bugis micro-market of up to 31,000 sq ft; Guoco Tower's column-free floor plates span 27,000 to 30,000 sq ft.
Marina One's typical floor plates range from 34,000 to 40,000 sq ft - among the largest available in Marina Bay.
There are two high density floors on the 28th and 29th floor of Marina One, measuring some 100,000 sq ft each and 170 metres long. Offering good views of the sea, each high density floor is able to accommodate more than 2,000 people.
This offering follows closely the popularity of "superwide" office spaces spanning 100,000 sq ft or more - the horizontal equivalent of the supertall high-rises - that have sprouted across Manhattan. These "superwide" office spaces are untested in this part of the world, with Marina One probably the only prime Grade-A office building in Asia to have high density floors.
But its success could stoke interest among other developers to provide such offerings in the future, said M+S CEO Kemmy Tan. So far, enquiries for such vast floor plates stem from global companies across sectors.
"These leasing activities are not just a flight to quality but a flight to efficiency," Ms Tan said. "The larger floor plates allow companies to be more efficient in their space planning instead of straddling over several floors."
In M+S's last official update in June, signed leases and those under documentation exceeded 550,000 sq ft, out of Marina One's total prime Grade-A office space of 1.88 million sq ft.
Ms Tan pointed out that recent leases inked for new developments are not just a case of companies playing musical chairs but a reflection of "green shoots" in the office market, with some companies "upsizing" their operations as opposed to others that are reportedly shrinking their office space and headcount.