Colliers Notes A Growing Trend Of Office Tenants Moving From The Central Business District To City-Fringe Locations

Singaporean companies are relocating their offices to less expensive Grade-A spaces situated in city-fringe locations in search of better value, according to a research paper by Colliers International named “City Fringe Gems.” 

The study found that in the third quarter of 2019, the average rental for Grade-A offices in city-fringe locations was $7.90 psf per month (pm), compared to an average of $10.08 psf pm in the CBD.

The report indicates that there has been an 18.4% surge in Grade-A office rents in city-fringe areas between 2Q2017 and 3Q2019, driven by favorable demand-supply conditions. Moreover, the rental gap between the city-fringe locations and the CBD has widened from 8% in 2011 to 22% presently.

Tricia Song, Colliers International’s head of research for Singapore, stated that business locations in the city fringe have become increasingly attractive due to government and developer-led urban regeneration efforts and the development of new buildings.

She added that these locations provide quality business spaces with reasonable rents, good infrastructure, and are in close proximity to sizable residential areas, allowing for easy access to a pool of talented individuals for occupiers.

Apart from that, many can access to array of amenities, including shopping centers, restaurants, entertainment options, and more despite working in these areas. (See also: Location Map)

prominent regions that have redefined Singapore’s city-fringe office market, presenting a desirable balance of quality and cost for occupiers; 

• Alexandra 
• Harbourfront 
• Paya Lebar 

The rejuvenation of the Alexandria precinct, which spans 13.5 hectares, has resulted in the completion of the integrated business hub, Mapletree Business City, in 2016. This precinct now provides over 5 million square feet of business space with the inclusion of Alexandra Point, PSA Building, and Alexandra Technopark.

The Harbourfront area features revamped buildings such as the HarbourFront Centre and HarbourFront Tower Two. Additionally, other refurbishment projects in the vicinity include HarbourFront Tower One, Bank of America Merrill Lynch HarbourFront, and Keppel Bay Tower, which was constructed to meet specific requirements. The entire precinct now offers more than 1.6 million square feet of net lettable office space.

As part of a decentralization initiative, Paya Lebar has been earmarked as a new commercial hub with office and retail developments, according to the 2008 Draft Master Plan. 

The opening of Paya Lebar Square in 2015 and Paya Lebar Quarter in recent years, along with the redevelopment of the Singapore Post Centre, has resulted in a total of over 1.6 million square feet of net lettable office space in the area. (Read about: Paya Lebar Master Plan) 

Tricia Song has remarked that Paya Lebar stands out as the location with the best accessibility and quality of office space, despite having comparatively higher rental rates than the other two areas.

Looking ahead, the Greater Southern Waterfront development project and the final phase of the Circle Line are expected to bring benefits to HarbourFront and Alexandra due to their proximity.

City fringe Grade-A offices had capitalization rates ranging from 3.7% to 4% in Q3 2019 for investors, whereas CBD Grade-A offices had rates between 3.1% and 3.5% during the same period.

Due to the limited supply, stable rental growth of 2.4% compound annual growth rate (CAGR) is expected for city-fringe Grade-A rents between 2019 and 2023. Robust transaction volumes across the office market drove the average capital values up by 16.5% to $1,733 per square foot between Q2 2017 and Q3 2019.

Jerome Wright, Colliers’ director, suggests that developers and investors take advantage of the current favorable interest rate outlook and significant capital allocation in Singapore by reviewing their portfolios and diversifying into city-fringe areas that have potential for rental growth or capital appreciation.

Individuals interested in living in Tembusu Grand can anticipate a rise in the demand for rental units or rooms as job opportunities and workspaces in the Paya Lebar area become more accessible. This trend is beneficial for potential residents who prefer to save travel time and spend their free time after work.