Occupiers are increasingly looking for alternative city fringe locations like Paya Lebar, HarbourFront, and Alexandra which offer greater affordability and value.

The office market is witnessing a shift towards flight-to-value, on the back of increasing rents and tight vacancies within the central business district (CBD), revealed a Colliers International report.

It noted that occupiers are increasingly looking for alternative city fringe locations which offer greater affordability and value as well as meet their evolving business needs.

In fact, Colliers Research data showed that the rental gap between the CBD and city fringe has widened to 22% in 2019 from 2011’s 8%. The average Grade A office rent within the city fringe now stands at $7.90 per square foot per month (psf pm), while those in the CBD is $10.08 psf pm.

“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,” said Tricia Song, head of research for Singapore at Colliers International.

In particular, city fringe locations Alexandra, Paya Lebar and HarbourFront have reshaped the city-state’s fringe office market while offering occupiers optimal quality and price mix.

Alexandra Precinct, for instance, is primarily rejuvenated by Mapletree Business City (MBC). Completed in 2016, MBC along with neighbouring buildings Alexandra Technopark, PSA Building and Alexandra Point offers more than five million sq ft of business space, some of which come with Grade-A office specifications.

Paya Lebar and HarbourFront, on the other hand, each offers over 1.6 million sq ft net lettable area of office space.

“Among the three precincts, we believe Paya Lebar have the most to offer in terms of accessibility (proximity to Paya Lebar MRT station which is an interchange for the East-West line and Circle line) and availability of quality office stock (availability of space in Paya Lebar Quarter), although rents are relatively higher than the other two precincts,” said Song.

Colliers Research noted that city fringe business space offers good investment prospects in terms of capital appreciation and rental growth, especially in areas zoned as part of the urban transformation plans of the government.

As of Q3 2019, City Fringe Grade A offices has a cap rate of 3.7% to 4%, compared to 3.15% to 3.50% for CBD Grade A offices. Year-to-date Q3 2019, City Fringe Grade A rents rose 18.4% to $7.90 psf pm, 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,” added Colliers.

Source: CommercialGuru, 4 November 2019