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As more firms move out of the central region, office decentralisation has become more common than ever.
By Nikki De Guzman
The recent announcement of major local and international companies setting up or moving their offices outside the central region has seen many turn their attention to regional centres.
Previously, offices outside of the central business district (CBD) would move out to city-fringe areas like Novena which have, over the past decade, evolved into vibrant office clusters. Now, good-quality office spaces can also be found in regional centres like Tampines Regional Centre and Jurong Regional Centre, which have started gaining confidence from local and international companies alike.
In the second part of our feature on decentralisation, we shed light on the office market – how regional centres are becoming new commercial hubs, the ever changing skyline of these regions, and the effects of the rising number of companies moving out of the CBD.
Office decentralisation
A government initiative that dates back to 1991 when it started as a Concept Plan, the idea of decentralisation was aimed at keeping the republic sustainable and alleviating congestion of both people and transport in the central area by creating more options for businesses in the regional centres. Since taking off, these regional centres — including Tampines Regional Centre and Jurong Regional Centre – have transformed as many improvements to these areas have recently been completed, like better transport connections and other developments in the region.
This was one of the reasons analysts cited as driving office decentralisation.
“Office occupiers are gradually more receptive of locating their office spaces out of the city centre to city fringe and suburban areas, as MRT transport connectivity improves substantially with the openings of Circle and Downtown Lines in recent years,” said Alice Tan, Director and Head of Consultancy & Research, Knight Frank Singapore.
Many developers have expressed more confidence in these regional centres because of their connectivity in terms of transportation, as well as their great potential. In fact, in the past couple of years, more Grade A office buildings have sprung up in these regional centres, particularly in the up-and-coming western region. “This includes The Metropolis (in Buona Vista), Westgate Tower and JEM Office Tower (both in Jurong East), which collectively contribute 1.7 million sq ft of office space or 60.7 percent of decentralised stock,” JLL said.
These good-quality office buildings have specifications that are comparable to but more affordable than Grade A office space in the CBD, which have turned the heads of local and international companies alike to set up their offices there.
Rental gap
The long-term strategy of decentralisation, apart from decongesting the central region and bringing work closer to home, was to offer businesses lower-cost alternatives for business locations.
And the difference in office rental costs between the central region and suburban areas reflect just that. According to a report by Knight Frank last year, average monthly Prime Grade A and Grade A office rents in the CBD in the third quarter of 2015 ranged from S$7.50 to S$13.30 per sq ft, while those in the suburban areas recorded a range from S$4.40 to S$6.20 per sq ft. This translates to a difference of about S$3.1 to S$7.1 per sq ft (refer to Table 1).
Amid unpredictable market conditions here and abroad, companies with offices in the republic have started applying caution to business strategies and have become cost-conscious, particularly when it comes to rent.
Tenants who are looking at more cost-effective and sustainable business solutions have been drawn to regional centres, where quite a number of premium-grade buildings have recently become available, with more notable developments approaching completion.
A number of companies have been seen moving out of the central region to the western regional centre despite the latter being an untested market. For example, German automotive firm Daimler Group will be moving from its office in Marina Centre to occupy about 55,000 sq ft of office space in one of Jurong East’s latest office space additions, Westgate. The move is expected to take place this year, when the firm’s existing lease expires in the first quarter.
But not only do companies take up office space, CapitaLand even managed to sell the 20-storey Westgate office tower for S$579.4 million to a consortium comprising Sun Venture Homes and Low Keng Huat. The consortium was cited as saying the purchase was part of its efforts to tap into the growth potential of the up-and-coming Jurong Lake District.
Boon or bane?
While office spaces in suburban areas add geographical competition to those in the central areas, analysts say decentralised office spaces can actually complement office use in the CBD. “Office decentralisation enables efficient allocation of resources where the support functions of corporate occupiers are located in such space, while main functions are housed in the CBD,” said JLL.
The spaces vacated by those companies that have gone out of the CBD can now accommodate those businesses looking to make some “flight-to-quality” movement, take up bigger and better space and establishing their headquarters in these buildings.
On the flipside, the decentralisation of office spaces can be a both boon and bane to the suburban micro-markets.
ERA key executive office Eugene Lim said: “Decentralization might bring up rents in suburban areas, as newer and higher quality buildings are completed. Taking Jurong East as an example, in 2010, (before the completion of) Westgate office tower and JEM, rents were about S$3 per sq ft per month. Last year, (rents in the area were at a peak of) S$7 per sq ft per month in the newer buildings, while others would be about S$4 to $5 per per sq ft per month.”
Meanwhile, average occupancy rates in the suburban area spiked to 96.4 percent in the first half of 2015 and are relatively unchanged throughout the year.
But while rents in regional centres have since gained upward momentum as seen in the Jurong Regional Centre, effects to the rents in the CBD are expected to be minimal, according to JLL, due to the comparatively small stock that will be available in the decentralized locations as compared with that in the central region.
Looking forward
“The future of decentralization continues to look viable and attractive to corporate occupiers,” said JLL, “as these newer buildings offer lower overhead cost.”
Louise Toovey, Director for Office at Knight Frank, said: “More (office decentralization) in the next few years can be expected as companies look for ways to lower their office rental costs and there is a steady stream of office space in fringe and suburban areas.”
A number of new or renovated office buildings outside the CBD have been completed, including the former NOL Building, now 456 Alexandra Road. In the next few years, new office buildings which will bring in a supply of office spaces outside the central, area includes DUO Tower which is expected to be completed in 2017, Woods Square in Woodlands, and the yet-to-be-named joint venture development between Lend Lease and an Abu Dhabi sovereign wealth fund in Paya Lebar.
With this, office rents and prices of suburban office spaces are expected to hold steady if not increase in the near term.
“Rents and sales of office spaces in regional centres are expected to remain stable, as there is limited stock. In particular, in Woodlands, where only one commercial site has been sold via the Government Land Sales programme, prices and rents are likely to rise in the future as all the government’s plans come to fruition,” said Lim.
A 740-unit mixed-use project comprising 640 offices, 53 medical suites and 47 restaurants, Vision Exchange is a 99-year leasehold development by Sim Lian JV (Vision).
Designed to suit various needs, Vision Exchange sits on a 124,097 sq ft site and has a total gross floor area of about 688,890 sq ft. Unit sizes range between 183 sq ft to 1,690 sq ft, with the option of combining units for larger work or retail spaces.
Located in the heart of Jurong Gateway, the building is easily accessible via the Pan Island Expressway (PIE) and Ayer Rajah Expressway (AYE).
Commuters alighting from Jurong East MRT station and Bus Interchange can use the sheltered walkways that also link to nearby malls such as Big Box, JEM and Westgate. It also has a direct link to the International Business Park.
Vision Exchange is expected to obtain TOP in December 2018.
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