Will it pose a threat to the office market?

Transcription

1 HIGH-SPECS COLLIERS INTERNATIONAL INDUSTRIAL SPACE WHITE - WILL PAPER IT POSE A THREAT TO THE OFFICE MARKET? WHITE PAPER MARCH 2011 MARCH 2011 High-Specs Industrial Space as Alternative Office Premises Will it pose a threat to the office market? Industrial premises, particularly those with high-specifications (highspecs) such as business park space, were sought after as alternative office premises for qualifying business functions that do not require a Central Business District (CBD) location in This was due to the supply crunch in the office sector then, which led to soaring rents. This year, given the prospects of office rental growth outpacing that of industrial premises, it raises the question of whether history will be repeated. In the aftermath of the global financial crisis, rents of ground and upper floor conventional factory space had recovered by 8.6 and 10.8 per cent, to S$2.03 and S$1.74 per sq ft per month respectively, as of 4Q Similarly, since bottoming in 1H 2010, high-specs industrial rents had recovered by 6.3 and 7.6 per cent for ground and upper floor space to end 2010 at S$3.19 and S$2.99 per sq ft per month, respectively. The recovery in industrial rents was, however, moderate, when compared to the over 20 per cent jump in Grade A and B office rents in the CBD from their respective troughs in 3Q P. 1

2 in recent years, high-specs industrial developments have gained popularity through their own merit due to the narrowing in gap between highspecs premises (in particular those located in the business parks) and traditional office space (especially older office developments) and 1Q 2010, to S$7.91 and S$6.18 per sq ft per month as of 4Q And with office rents forecast to grow by 15 to 20 per cent in 2011, which is substantially steeper than the 5 to 10 per cent growth projected for high-specs industrial rents, the rental gap between high-specs industrial space and office space is expected to widen further. Gross Rents of CBD Office & High-Specs Industrial Space Gross Rents ($per sq ft per month) $16 $14 $12 $10 $8 $6 $4 $2 $ F High-Specs Industrial Source: Colliers International Singapore Research/URA This growing rental gap between office and high-specs industrial premises, and hence the potential cost savings involved, is expected to motivate firms to consider shifting their office functions that do not require a CBD location, to high-specs premises such as business parks, which offer lower-cost solutions. Apart from rental cost savings, in recent years, high-specs industrial developments have gained popularity through their own merit due to the narrowing in gap between high-specs premises (in particular those located in the business parks) and traditional office space (especially older office developments), in terms of such offerings as building specifications, overall work environment, amenities, and accessibility. P. 2

3 Business parks today are increasingly being developed to become self sufficient live-work-play communities, complete with full fledged malls/entertainment facilities and accommodation options. the availability of such amenities catering to the higher demands of office workers and supporting business operations has enabled business parks to overcome their shortcomings of being located outside the CBD and away from where such amenities are more readily available. BUILDING SPECIFICATIONS High-specs industrial developments, particularly those in business parks, have evolved to become close cousins of traditional office space. This blurring of lines between office and high-specs industrial space was further exacerbated by the completion of Mapletree Business City (MBC) in 2010, which is the first integrated office and business park development in Singapore. Offering some 0.42 million sq ft of lettable office space and 1.26 million sq ft of lettable business park space within a lushly-landscaped development, complete with retail shops, conference facilities, auditorium, gymnasium and childcare centre, there is no clear distinction in the building specifications whether the exterior building design/façade or internal specifications between the office and business park components. For example, both the office and business park towers at MBC offer column-free space with a raised floor-to-ceiling height of 3.2 m, as well as large floor plates ranging from around 2,200 to 3,700 sq m (23,681 to 39,826 sq ft) for typical business park floors and around 2,500 sq m (26,910 sq ft) for a typical office floor said to be one of the largest in Singapore. It also uses high-technology building equipment such as a fully integrated Intelligent Building Control System for energy conservation. These building specifications are equivalent to, or maybe even better than, some of the existing office developments in the CBD. OVERALL WORK ENVIRONMENT AND AVAILABLE AMENITIES Business parks today are increasingly being developed to become self sufficient live-workplay communities, complete with full fledged malls/entertainment facilities and accommodation options. For instance, at one-north, one could find Frasers Place Fusionopolis, a serviced apartment development, as well as an upcoming 271-room Park Avenue Hotel that is expected to open in 2011, together with the completion of some 115,000 sq ft of retail/entertainment space in the same year. CapitaLand Retail Limited and Rock Productions Pte Ltd are also jointly developing an integrated civic, cultural, retail and entertainment hub by 2012 that will be linked directly to the Buona Vista MRT station. Likewise, two upcoming mixed projects UE BizHub East by United Engineers and Changi P. 3

4 many business parks are now served by MRT stations, and hence can be easily accessed from many parts of the island... At the same time, the mushrooming of more business park space at the fringe of the CBD in recent years has provided ample opportunities for qualifying office users seeking large floor plates to consolidate their business operations or site their backroom operations within close proximity to the CBD. Changi City Source: Ascendas-Frasers Pte Ltd City by Ascendas and Frasers Centrepoint in the Changi Business Park will offer prospective tenants a combination of business park/office space, convention centre, retail facilities, and serviced apartment/hotel developments when completed in This trend is an improvement from the past, when retail facilities in business parks were planned more as ancillary supporting services and the provision for accommodation, such as serviced apartments and hotels, catering to business travellers was unheard of. Consequently, the availability of such amenities catering to the higher demands of office workers and supporting business operations has enabled business parks to overcome their shortcomings of being located outside the CBD and away from where such amenities are more readily available. This has helped to hone the competitive edge of business parks as a viable suburban office location. ACCESSIBILITY The fact that many business parks are now served by MRT stations, and hence can be easily accessed from many parts of the island, has also contributed to the rising acceptance of business parks by qualifying office users as alternative business premises. For one, it addresses their concerns with regard to the accessibility of their office premises P. 4

5 for their clients and business partners. In addition, the well-connectivity of business parks to the MRT network would also enable tenants to attract staff, given that work accessibility is a key human resource requirement. At the same time, the mushrooming of more business park space at the fringe of the CBD in recent years, following the development of one-north in Buona Vista and MBC in the Alexandra precinct, has provided ample opportunities for qualifying office users seeking large floor plates to consolidate their business operations or site their backroom operations within close proximity to the CBD. According to the figures from the Urban Redevelopment Authority, the stock of business park space located in the Central Region, which comprises the CBD and its fringe, surged by 170 per cent from just 3.10 million sq ft in 2002 to 8.39 million sq ft in 2010, and accounting for more than half of the million sq ft of business park space available islandwide as of 4Q The stock of business park space in the Central Region is set to continue to grow, with 73.3 per cent of the total estimated 5.18 million sq ft of business park space coming on stream from 2011 to 2014 located in this region. In the longer term, there is potential for the supply of business park space in the Central Region to rise further, as more business park sites have been earmarked in Paya Lebar under the Master Plan Business Park Net New Supply 2,500 Net Floor Area ('000 sq ft) 2,000 1,500 1, F 2012 F 2013 F 2014 F Central Region Outside Central Region Source: Colliers International Singapore Research/URA P. 5

6 the growing acceptance of highspecs space as alternative business premises should not be viewed as a threat to the office market. Rather, high-specs/business park developments should be embraced as part of a wider spectrum of real estate solutions to the business community. OUTLOOK In light of the above, it is hence, no surprise that high-specs industrial facilities, especially those located in the business parks, are increasingly being sought after by qualifying office users as attractive substitutes to traditional office premises, without compromising on the quality and corporate image of their business premises. This bodes well for the high-specs industrial market. Demand, which is expected to see an uplift from company expansions and new set ups likely to take place on the back of continued economic expansion and government s commitment to grow the high value-added and knowledge-based industries, will enjoy an added boost from the spillover demand from the office market. In particular, the occupancy rate of business parks could rebound to the 80 per cent level by year s end from the 75.5 per cent recorded as of end Nonetheless, the growing acceptance of high-specs space as alternative business premises due to the increasingly synonymous offering between business parks and office premises should not be viewed as a threat to the office market. Rather, high-specs/business park developments should be embraced as part of a wider spectrum of real estate solutions to the business community. Afterall, the availability of options in terms of form, location and budget could encourage more companies to operate in and from Singapore, thus boosting demand for both office and highspecs industrial space. The end result should be a win-win for all. P. 6

7 Notes: AUTHORS: Doreen Goh Senior Manager Michelle Tee Senior Research Analyst COLLIERS INTERNATIONAL CONSULTANCY & VALUATION (SINGAPORE) PTE LTD 1 Raffles Place #45-00 One Raffles Place Singapore TEL FAX RCB NO E This report and other research materials may be found on our website at Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, express or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s) All rights reserved. P. 7