The Business Times | APRIL 09, 2013
Tenants taking advantage of competitive rents to consolidate ops: CBRE
The business and science park market is thriving and as in the commercial office market of today, there has been a flight by tenants to new buildings with quality specifications and in better locations.
Real estate consultant CBRE observes that tenants have been taking advantage of competitive rents in these new developments and consolidating their operations.
With the business park market continuing to record positive net absorption in Q1 2013, new buildings with quality specifications saw an increased take-up in the quarter, in places such as one-north, Mapletree Business City, and Changi Business Park, CBRE said yesterday.
The vacancy rate has fallen to 6.4 per cent from 7.2 per cent last quarter, with the key drivers of demand coming from the financial, pharmaceutical, media and IT industries.
Average rents have levelled out at $3.80 per square foot per month since the third quarter of 2012.
CBRE cited Ericsson's lease in One@Changi City, and the planned expansion of an unnamed financial institution in Mapletree Business City as examples of tenants taking advantage of competitive rents in new developments and consolidating their operations.
This flight to quality developments has coaxed older parks to undergo asset enhancement or redevelopment to remain relevant, as seen in the refurbishment of the former Ultro Building in Changi Business Park.
Michael Tay, executive director of office services at CBRE, observed the development of a "two-tier business and science park sector" differentiated by location and, to an extent, building specifications.
"At the moment, city fringe business parks such as Mapletree Business City and one-north can command a premium in rent of about 20 per cent to 30 per cent over business parks in outlying locations. Despite this premium, some occupiers are still attracted to these developments due to their location and quality," he said.
A JTC spokesman, for instance, puts one-north's attractiveness down to its combination of research facilities and business park space with educational, residential and recreational developments.
CBRE expects the creation of 800,000 sq ft of secondary space in the market due to the relocation of tenants to new developments, and downsizing of some. This would be seen mostly between Q2 and Q3 2013.
"The take-up of impending secondary and new business park supply will be the acid test for the health of the business park market going forward, and a key factor in determining the direction rents will take in the medium-long term," said Mr Tay.
With around 750,000 sq ft of 2013's new supply yet to be pre-let, the forecast supply of 1.55 million sq ft and competitive rents in the Grade B office market and light industrial markets should keep rental increases in check, despite expected healthy demand this year.
Lim Kien Kim, director and head of industrial at Knight Frank Singapore, also speculates downward pressure on business park rents with the completion of new business parks, and that supply is likely to outstrip demand for at least two quarters while tenants become more cost-sensitive.
"Hence, landlords are likely to be more pro-active to retain and attract tenants in the face of the evolving business environment," he said.
The market could also see further movement in stock in the coming years as more developments are expected to be enhanced or redeveloped.
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