High-Specs Industrial Space as Alternative Office Premises


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High-Specs Industrial Space as Alternative Office Premises

  1. 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 WWW.COLLIERS.COM/SINGAPORE | P. 1
  2. 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 havegained popularity through And with office rents forecast to grow by 15 to 20 per cent in 2011, which is substantiallytheir own merit – due to the steeper than the 5 to 10 per cent growth projected for high-specs industrial rents, the rentalnarrowing in gap between high- gap between high-specs industrial space and office space is expected to widen further.specs premises (in particularthose located in the businessparks) and traditional office Gross Rents of CBD Office & High-Specs Industrial Spacespace (especially older office $16developments)… $14 Gross Rents ($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. WWW.COLLIERS.COM/SINGAPORE | P. 2
  3. 3. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011Business parks today are BUILDING SPECIFICATIONSincreasingly being developedto 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 exacerbatedmalls/entertainment facilities by the completion of Mapletree Business City (MBC) in 2010, which is the first integratedand 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 internalamenities catering to the higher specifications – between the office and business park components.demands of office workers andsupporting business operations For example, both the office and business park towers at MBC offer column-free space with ahas enabled business parks to raised floor-to-ceiling height of 3.2 m, as well as large floor plates ranging from around 2,200overcome their shortcomings to 3,700 sq m (23,681 to 39,826 sq ft) for typical business park floors and around 2,500 sq mof being located outside the (26,910 sq ft) for a typical office floor – said to be one of the largest in Singapore. It alsoCBD and away from wheresuch amenities are more readily uses high-technology building equipment such as a fully integrated Intelligent Building Controlavailable. 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 WWW.COLLIERS.COM/SINGAPORE | P. 3
  4. 4. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011… many business parks are nowserved by MRT stations, and hence canbe easily accessed from many parts ofthe island ...At the same time, the mushroomingof more business park space at thefringe of the CBD in recent years…has provided ample opportunitiesfor qualifying office users seekinglarge floor plates to consolidate theirbusiness operations or site theirbackroom operations within close Changi City Source: Ascendas-Frasers Pte Ltdproximity 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 WWW.COLLIERS.COM/SINGAPORE | P. 4
  5. 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 WWW.COLLIERS.COM/SINGAPORE | P. 5
  6. 6. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011… the growing acceptance of high- OUTLOOKspecs space as alternative businesspremises … should not be viewed In light of the above, it is hence, no surprise that high-specs industrial facilities, especiallyas a threat to the office market. those located in the business parks, are increasingly being sought after by qualifying officeRather, high-specs/business park users as attractive substitutes to traditional office premises, without compromising on thedevelopments should be embraced as quality and corporate image of their business premises.part of a wider spectrum of real estatesolutions 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. WWW.COLLIERS.COM/SINGAPORE | P. 6
  7. 7. HIGH-SPECS INDUSTRIAL SPACE - WILL IT POSE A THREAT TO THE OFFICE MARKET? | WHITE PAPER | MARCH 2011 Notes:AUTHORS:Doreen GohSenior ManagerEMAIL doreen.goh@colliers.comMichelle TeeSenior Research AnalystEMAIL michelle.tee@colliers.comCOLLIERS INTERNATIONALCONSULTANCY & VALUATION(SINGAPORE) PTE LTD1 Raffles Place#45-00 One Raffles PlaceSingapore 048616TEL +65 6223 2323FAX +65 6222 4901RCB NO 198105965EThis report and other research materials maybe found on our website at www.colliers.com.Questions related to information herein shouldbe directed to the Research Department at thenumber indicated above. This document hasbeen prepared by Colliers International foradvertising and general information only.Colliers International makes no guarantees,representations or warranties of any kind,express or implied, regarding the informationincluding, but not limited to, warranties ofcontent, accuracy and reliability. Any interestedparty should undertake their own inquiries as tothe accuracy of the information. ColliersInternational excludes unequivocally all inferredor implied terms, conditions and warrantiesarising out of this document and excludes allliability for loss and damages arising there from.This publication is the copyrighted property ofColliers International and/or its licensor(s).© 2011. All rights reserved. WWW.COLLIERS.COM/SINGAPORE | P. 7