The intense competition for tenants is causing landlords to resort offering cash or capital contributions to draw new business in the typically calm office sector. Also called capital expenditures, these “golden hellos” range from $500,000 to a couple of million dollars according to financial consultants. Most of the contributions are used in furnishing offices.
“It shows that there’s a certain amount of pressure in terms of occupancy. This hasn’t been done since 2003,” said Chris Archibold, the head of markets at Jones Lang LaSalle (JLL) Singapore.
“The tenants have to be big enough to anchor a building. It’s got to be a good size to get a leasing campaign started,” Archibold added. “These would be Fortune 500 companies, a recognisable brand name.”
Donald Han, managing director at Cushman & Wakefield, said, “The biggest problem today is the lack of cash outlay to fund the fit-out process in relocation.”
CBRE executive director (office services) Moray Armstrong seemed to validate the recent actions when he said that there were actually some deals with capital contributions in the past downturns. He also added that this practise, which is common in the US, may actually be more widespread than realised. In fact, more funds could be at the forefront.
But despite capital contributions on new buildings, there have not been any major leasing deals in the past nine months. Whereas, during the recent boom, there were three to four major transactions each year, as observed by JLL.
Still, office inquiries are increasing as landlords become more competitive, said Douglas Dunkerley of Corporate Locations.
While companies are putting expansions on hold, office space demand is still down. By 2010, office space vacancy levels will rise, consultants said.
Phillip Overmyer, the chief executive at Singapore International Chamber of Commerce, fears that some larger companies may move out of Singapore and look for cheaper locations.