Colliers International Whitepaper

1. HIGH-SPECSINTERNATIONAL | WHITE PAPER A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011
COLLIERS INDUSTRIAL SPACE - WILL IT POSE
MARCH 2011
High-Specs Industrial Space as Alternative Office Premises
Will it pose a threat to the
office market?
Industrial premises, particularly those with high-specifications (high-
specs) such as business park space, were sought after as alternative
office premises for qualifying business functions that do not require a
Central Business District (CBD) location in 2007. This was due to the
supply crunch in the office sector then, which led to soaring rents.
This year, given the prospects of office rental growth outpacing that of industrial premises, it
raises the question of whether history will be repeated.
In the aftermath of the global financial crisis, rents of ground and upper floor conventional
factory space had recovered by 8.6 and 10.8 per cent, to S$2.03 and S$1.74 per sq ft per
month respectively, as of 4Q 2010. Similarly, since bottoming in 1H 2010, high-specs
industrial rents had recovered by 6.3 and 7.6 per cent for ground and upper floor space to
end 2010 at S$3.19 and S$2.99 per sq ft per month, respectively.
The recovery in industrial rents was, however, moderate, when compared to the over 20 per
cent jump in Grade A and B office rents in the CBD from their respective troughs in 3Q 2009
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2. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011
… in recent years, high-specs and 1Q 2010, to S$7.91 and S$6.18 per sq ft per month as of 4Q 2010.
industrial developments have
gained popularity through And with office rents forecast to grow by 15 to 20 per cent in 2011, which is substantially
their own merit – due to the steeper than the 5 to 10 per cent growth projected for high-specs industrial rents, the rental
narrowing in gap between high- gap between high-specs industrial space and office space is expected to widen further.
specs premises (in particular
those located in the business
parks) and traditional office
Gross Rents of CBD Office & High-Specs Industrial Space
space (especially older office
$16
developments)…
$14
Gross Rents ($per sq ft per month)
$12
$10
$8
$6
$4
$2
$0
2003 2004 2005 2006 2007 2008 2009 2010 2011 F
High-Specs Industrial
Source: Colliers International Singapore Research/URA
This growing rental gap between office and high-specs industrial premises, and hence the
potential cost savings involved, is expected to motivate firms to consider shifting their office
functions that do not require a CBD location, to high-specs premises such as business parks,
which offer lower-cost solutions.
Apart from rental cost savings, in recent years, high-specs industrial developments have
gained popularity through their own merit – due to the narrowing in gap between high-specs
premises (in particular those located in the business parks) and traditional office space
(especially older office developments), in terms of such offerings as building specifications,
overall work environment, amenities, and accessibility.
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3. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011
Business parks today are BUILDING SPECIFICATIONS
increasingly being developed
to become self sufficient High-specs industrial developments, particularly those in business parks, have evolved to
“live-work-play” communities, become close cousins of traditional office space.
complete with full fledged
This blurring of lines between office and high-specs industrial space was further exacerbated
malls/entertainment facilities
by the completion of Mapletree Business City (MBC) in 2010, which is the first integrated
and accommodation options.
office and business park development in Singapore.
Offering some 0.42 million sq ft of lettable office space and 1.26 million sq ft of lettable
business park space within a lushly-landscaped development, complete with retail shops,
conference facilities, auditorium, gymnasium and childcare centre, there is no clear distinction
… the availability of such in the building specifications – whether the exterior building design/façade or internal
amenities catering to the higher
specifications – between the office and business park components.
demands of office workers and
supporting business operations For example, both the office and business park towers at MBC offer column-free space with a
has enabled business parks to raised floor-to-ceiling height of 3.2 m, as well as large floor plates ranging from around 2,200
overcome their shortcomings
to 3,700 sq m (23,681 to 39,826 sq ft) for typical business park floors and around 2,500 sq m
of being located outside the
(26,910 sq ft) for a typical office floor – said to be one of the largest in Singapore. It also
CBD and away from where
such amenities are more readily uses high-technology building equipment such as a fully integrated Intelligent Building Control
available. System for energy conservation.
These building specifications are equivalent to, or maybe even better than, some of the
existing office developments in the CBD.
OVERALL WORK ENVIRONMENT AND AVAILABLE AMENITIES
Business parks today are increasingly being developed to become self sufficient “live-work-
play” communities, complete with full fledged malls/entertainment facilities and
accommodation options.
For instance, at one-north, one could find Frasers Place Fusionopolis, a serviced apartment
development, as well as an upcoming 271-room Park Avenue Hotel that is expected to open in
2011, together with the completion of some 115,000 sq ft of retail/entertainment space in the
same year. CapitaLand Retail Limited and Rock Productions Pte Ltd are also jointly
developing an integrated civic, cultural, retail and entertainment hub by 2012 that will be
linked directly to the Buona Vista MRT station.
Likewise, two upcoming mixed projects – UE BizHub East by United Engineers and Changi
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4. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011
… many business parks are now
served by MRT stations, and hence can
be easily accessed from many parts of
the island ...
At the same time, the mushrooming
of more business park space at the
fringe of the CBD in recent years…
has provided ample opportunities
for qualifying office users seeking
large floor plates to consolidate their
business operations or site their
backroom operations within close Changi City Source: Ascendas-Frasers Pte Ltd
proximity to the CBD.
City by Ascendas and Frasers Centrepoint – in the Changi Business Park will offer
prospective tenants a combination of business park/office space, convention centre, retail
facilities, and serviced apartment/hotel developments when completed in 2012.
This trend is an improvement from the past, when retail facilities in business parks were
planned more as ancillary supporting services and the provision for accommodation, such as
serviced apartments and hotels, catering to business travellers was unheard of.
Consequently, the availability of such amenities catering to the higher demands of office
workers and supporting business operations has enabled business parks to overcome their
shortcomings of being located outside the CBD and away from where such amenities are
more readily available. This has helped to hone the competitive edge of business parks as a
viable suburban office location.
ACCESSIBILITY
The fact that many business parks are now served by MRT stations, and hence can be easily
accessed from many parts of the island, has also contributed to the rising acceptance of
business parks by qualifying office users as alternative business premises.
For one, it addresses their concerns with regard to the accessibility of their office premises
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5. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011
for their clients and business partners. In addition, the well-connectivity of business parks to
the MRT network would also enable tenants to attract staff, given that work accessibility is a
key human resource requirement.
At the same time, the mushrooming of more business park space at the fringe of the CBD in
recent years, following the development of one-north in Buona Vista and MBC in the
Alexandra precinct, has provided ample opportunities for qualifying office users seeking large
floor plates to consolidate their business operations or site their backroom operations within
close proximity to the CBD.
According to the figures from the Urban Redevelopment Authority, the stock of business park
space located in the Central Region, which comprises the CBD and its fringe, surged by 170
per cent from just 3.10 million sq ft in 2002 to 8.39 million sq ft in 2010, and accounting for
more than half of the 15.05 million sq ft of business park space available islandwide as of 4Q
2010.
The stock of business park space in the Central Region is set to continue to grow, with 73.3
per cent of the total estimated 5.18 million sq ft of business park space coming on stream
from 2011 to 2014 located in this region. In the longer term, there is potential for the supply
of business park space in the Central Region to rise further, as more business park sites have
been earmarked in Paya Lebar under the Master Plan 2008.
Business Park Net New Supply
2,500
2,000
Net Floor Area ('000 sq ft)
1,500
1,000
500
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 F 2012 F 2013 F 2014 F
Central Region Outside Central Region
Source: Colliers International Singapore Research/URA
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6. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011
… the growing acceptance of high- OUTLOOK
specs space as alternative business
premises … should not be viewed In light of the above, it is hence, no surprise that high-specs industrial facilities, especially
as a threat to the office market. those located in the business parks, are increasingly being sought after by qualifying office
Rather, high-specs/business park users as attractive substitutes to traditional office premises, without compromising on the
developments should be embraced as quality and corporate image of their business premises.
part of a wider spectrum of real estate
solutions to the business community. This bodes well for the high-specs industrial market.
Demand, which is expected to see an uplift from company expansions and new set ups likely
to take place on the back of continued economic expansion and government’s commitment to
grow the high value-added and knowledge-based industries, will enjoy an added boost from
the spillover demand from the office market. In particular, the occupancy rate of business
parks could rebound to the 80 per cent level by year’s end from the 75.5 per cent recorded
as of end-2010.
Nonetheless, the growing acceptance of high-specs space as alternative business premises
due to the increasingly synonymous offering between business parks and office premises
should not be viewed as a threat to the office market.
Rather, high-specs/business park developments should be embraced as part of a wider
spectrum of real estate solutions to the business community.
Afterall, the availability of options in terms of form, location and budget could encourage more
companies to operate in and from Singapore, thus boosting demand for both office and high-
specs industrial space.
The end result should be a win-win for all.
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7. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011
Notes:
AUTHORS:
Doreen Goh
Senior Manager
EMAIL doreen.goh@colliers.com
Michelle Tee
Senior Research Analyst
EMAIL michelle.tee@colliers.com
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