Rental Gap In Singapore Between CBD Office Space And Fringe Space Continues To Widen

The office market in Singapore is experiencing a change to flight-to-value following the increased in rent in Singapore’s central business district. According to a Colliers International report, companies are looking for fringe locations in the city for their offices. They are seeking places that offer enhanced value and affordability that also meet their changing business needs.

Why the rent gap between CBD and city fringes is widening

The report indicates that the rent gap between the city’s CBD and fringe locations has significantly widened. In 2019 the gap has widened to 22% relative to 8% nine years ago. According to Colliers’ research data on average rent for a Grade A office space within the central business district is around $10.08 psm per month. While on the city fringes average rent for office space stands at around $7.90 psm per month which is attracting renters looking for value and affordably.

Colliers head of research for Singapore, Tricia Song indicated that in recent years the city fringe has businesses considerably enhance their value proposition. Song indicated that there are new buildings with developers and government undertaking urban regeneration in the areas. She adds that the locations offer ample and quality office space at good rates. Equally the infrastructure is amazing and there is proximity to residential areas providing occupiers with the ready talent pool.

City fringes shaping Singapore’s office market

The Colliers report identifies HabourFront, Alexandra and Paya Lebar as the city fringes defining office occupancy outside the CBD. The areas are offering quality office space to occupiers with the right price mix. Rejuvenation of the area as well as other developments has opened the places as potential places for offices.

For instance, Mapletree Business City has rejuvenated the Alexandra area. Completed fully in 2016 the MBC and other buildings such as Alexandra Technopark, PSA Building as well as the Alexandra Point provide more than 5 million sq. ft. of Grade A offer space.

The transformation of Paya Lebar, on the other hand, was part of the decentralization strategy advanced by the government. The Paya Lebar square opened in 2015 and the Payar Lebar Quarter opened this year. Together with the rejuvenated Singapore Post center offer a combined space of 1.6 million square feet.

The rejuvenation of HarbourFront began in 2004 with the redevelopment of the World Trade Centre and the Singapore Cable Car Tower. The area HabourFront area offers office space of more than 1.6 million sq feet.

Out of the three precincts, the Paya Lebar is the most accessible in terms of proximity to the Paya Lebar MRT station. However, rents are higher compared to the other two areas. The other precincts will also benefit in the long term from enhanced accessibility following the closing of the MRT loop.

Advantages of having office space in fringe locations

The first advantage of having office space in the city fringes is affordability. Rents in the CBD are increasing compared to the fringe areas where rent is a bit affordable. The offices are affordable and considering the fringe offices are under urban regeneration plans you will still get the same value as you would in the CBD.

Also, these areas offer a lot of investment prospects in terms of capital appreciation and rental growth. Therefore the city fringes can offer better opportunities relative to the central business district. Most importantly the fringes are zoned areas under the Urban Redevelopment Authority regeneration plans and thus offer high investment value.

The other benefit of having offices in the fringes is accessibility because they are close to residential enclaves. Having offices in city fringes addresses the movement challenges especially for people living in the suburbs. As a result, people can save time on commuting which they can put into enhanced productivity.

The city fringe office spaces also offer additional amenities that attract more people. Apart from office spaces, you can also access other amenities such as fitness centers, childcare support, and dining places. This offers many conveniences especially for someone looking to hit the gym immediately after work.

Disadvantages of office space in city fringes

The city fringes can be limiting when it comes to access to clients. The central business district in central and may not inconvenient your clients. If your client base is large and mainly operates in CBD it might be disadvantaging having an office in the fringes.

The sharing of coworking space is a growing trend and most of the city fringe office spaces are adopting this trend. The downside is that when sharing an office there is no privacy and if you want a private office the price you pay might be high.

What does this mean for the property market

The growing number of city fringe office is in line with the decentralization strategy as envisioned in the Incentive scheme CBD. This will enhance sustainability, liven decentralized gateways as well as minimize commuting. According to the decentralization, strategy offices should move to fringes of the city, therefore this will be a big boost for the property market as the government will release more parcels of land outside the CBD. These decentralized gateways will see enhanced development of property that will transform them into hubs.

Currently, there is a declining supply of office space in the central business district and the possibility of redeveloping new units in CBD is limited. Therefore property rents in the CBD will continue to increase going forward thus barring the possibility of demand shocks. As a result, the rental gap between CBD office spaces and that of City fringes will continue growing necessitating property development in the suburbs to meet demand.

Recently the Housing Development Board announced improved housing grants to replace CPF housing grants. The changes will lift demand for new HBD and also the resale market will equally benefit from the grant. The announced measures will steady resale prices especially considering the pool of property buyers is growing. However, the measure is negative for private properties as it is likely that buyers may opt for public housing following the changes. Nevertheless, the shift in demand will be less than 5%.