Firms are thus seeking city fringe locations for their offices.
The office market is increasingly seeking alternative city fringe locations for their businesses amidst rising rents and tight vacancies within the Central Business District (CBD), a report by Colliers International revealed.
City fringe locations offer greater affordability and value and also meet the evolving business needs of the market, noted Colliers.
According to data from Colliers Research, the rental gap between city fringe and CBD widened to 22% in 2019 from only 8% in 2011. The average Grade A office rent in the city fringe comes at $7.90 per square foot per month compared to the $10.08 psf pm in CBD.
“Business locations in the city fringe have strengthened their value proposition considerably in the past years with new builds as well as ongoing urban regeneration efforts undertaken by the government and developers. These locations offer quality business space with reasonable rents, good infrastructure, and are closer to sizable residential enclaves, which provide a ready talent pool for occupiers,” commented Tricia Song, head of research for Singapore at Colliers International.
In particular, Colliers identified the city fringe locations Alexandra, HarbourFront and Paya Lebar that have reshaped Singapore’s fringe office market. These three has offered an optimal quality and price mix for occupiers.
Alexandra Precinct is primarily rejuvenated by Mapletree Business City (MBC), completed in 2016. Together with neighbouring buildings PSA Building, Alexandra Technopark and Alexandra Point, these developments offer over 5 million sqft of business space, some with Grade-A office specifications. Meanwhile, HarbourFront Precinct and Paya Lebar Precinct individually offers in excess of 1.6 million sqft net lettable area (NLA) of office space, respectively.
Amongst the three precincts, Colliers zoned in on Paya Lebar as the most to offer in terms of accessibility and availability, although Alexandra and HarbourFront will benefit more from the development of Greater Southern Waterfront.
Colliers Research believes city fringe business space offers good investment prospects in terms of rental growth and capital appreciation, particularly in areas zoned as part of the Government’s urban transformation plans.
Currently, City Fringe Grade A offices offers a cap rate of 3.7%-4.0% as of Q3 2019, compared to 3.15%-3.50% for CBD Grade A offices. City Fringe Grade A rents have also climbed 18.4% YTD as of Q3 since Q2 2017 to $7.9 psf psm, driven by benign demand-supply dynamics.
“Going forward, we forecast stable rental growth of 2.4% compound annual growth rate (CAGR) from 2019-2023 (4% in 2019 and 2% in 2020) as supply remains tight,” the report added.
Similarly, average capital values of City fringe Grade A offices rose 16.5% since Q2 2017 to SGD1,733 psf as of Q3 2019, driven by robust transaction volumes for the overall office market, said Colliers Research.
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