CBD glut seen squeezing office rents Developers offer new units in smaller sizes to woo investors
New space coming on the market represents under 20 per cent of office stock in the CBD, but analysts are worried as developers have built more and smaller units to cater to investors switching out of the residential market. -- ST FILE PHOTO
CONCERNS over an impending glut of office space in the Central Business District are growing with a flood of new units in the wings.
This new space represents less than 20 per cent of the entire office stock in the city centre now.
But the influx is still worrying many analysts and comes as developers have built more office units to cater to investors switching out of the residential market.
Another feature of this trend is that to keep lump-sum prices affordable, developers have taken to building smaller offices, translating to higher per sq ft (psf) prices.
But industry players are divided over the rental prospects of these small units for investors, given the competition from other new units and existing ones.
Owners at Prudential Tower in Cecil Street, for instance, are carving more units from its total sellable area to extract more value from the investment, adding to the burgeoning supply.
Offices previously sized as half-floor (5,102 sq ft to 5,952 sq ft) or full-floor (about 12,000 sq ft) will now be sold at sizes from just 635 sq ft to 2,013 sq ft.
The selling price of $3,100 to $3,300 psf represents a healthy premium over the $2,316 psf paid for the building.
Of the 259 offices at the upcoming GSH Plaza - formerly Equity Plaza - about 22 per cent of the units will span 480 to 800 sq ft.
Marketing agents are promising rental yields of 3 per cent for these offices, implying monthly rents of about $10 psf.
But analysts said the reality seems to be well short of that figure as monthly rents of CBD strata offices are going for about $6.50 psf to $8.50 psf now.
Size matters for strata office units, said Ms Christine Li, director of research at Cushman & Wakefield.
"If the unit is 500 sq ft and you're hoping to rent at $10 psf, that's about $5,000. With that, you can get a decent-sized serviced office with a full suite of facilities.
It could offer tenants a better value proposition." Tenants in the CBD are typically finance and tech firms drawn to larger floor plates, she added.
Demand for smaller strata offices could come from firms setting up representative offices here, but those form only a small pool.
At least 1.02 million sq ft of new strata office space, concentrated in Shenton Way, will be added by 2018, figures from Cushman & Wakefield showed.
This comes from at least six projects due for completion in the next three years.
They include Far East Organization's PS100, which has 100 units ranging from 420 sq ft to 517 sq ft, and SBF Centre, with 197 offices, most of which are from 592 sq ft to 1,442 sq ft. Oxley Holdings is building Oxley Tower with 104 units from 947 sq ft to 1,346 sq ft and WyWy Development's Crown @ Robinson will have 86 units from 592 sq ft to 1,152 sq ft.
"Competing for tenants among the various strata-titled office projects in the CBD, as well as the increased supply from mega office projects completing in 2016, would make the market competitive as a whole," said Ms Chia Siew Chuin, director of research and advisory at Colliers.
"Any rental upside could be limited."
The Straits Times / Money Published on Saturday, 21 March 2015
By Cheryl Ong firstname.lastname@example.org