As big-time tenants are packing and preparing to move into gleaming new office buildings, including the Marina Bay Financial Centre (MBFC), landlords of older office blocks are beginning to search for replacements.
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“Raffles Place will be particularly hard hit, with five to six buildings seeing major tenants relocate to either MBFC or new schemes in Tanjong Pagar,” said Edmund Goh, office leasing agent and director of Corporate Locations.
The mini exodus includes companies like Standard Chartered, Normura, Macquarie and Barclays Capital, which announced its plan to move into a newly minted space like the MBFC.
CB Richard Ellis estimated about 4.1million sq ft of Grade A office space will be ready in 2010 and 2011, including office spaces at Ocean Financial Centre and MBFC.
In general, rental rates at these new office spaces tend to be much higher that the one in Raffles Place. The take-up of this new spaces means a large number of office space could be left vacant in the coming months.
The Tower One and Two of MBCF, which boast a total of 1.6 million sq ft office space, will be ready in Q3, and is almost fully leased except for a small portion reserved for the expansion of existing tenants.
However, some experts stressed that full impact on rents will not be felt until later part of the year, when the actual relocation of companies begin and asset managers have clearer view of occupancy rates.
Ms. June Chua, director of commercial leasing at Savills Singapore, said she is “cautiously optimistic” that the vacant space will be absorbed.
“Vacancy levels at some of the older buildings will definitely increase and we might start seeing rental corrections early next year… But there is no firm general trend as rentals are building-specific depending on occupancy rates, which have not yet been finalized.”
But other experts remain very optimistic, expressing that older buildings are unlikely to see a hollowing out as leasing activity in the country has been picking up along with the economic recovery.
They added that firms which held off expansion despite the recession are preparing to take advantage of the competitive rates. Smaller firms may also see this as a chance move into prime areas.
Danny Yeo, group managing director at Knight Frank, said that with the arrivals of new foreign companies, Grade A office space are unlikely to remain vacant for long. Mr. Yeo expects rents to stabilize this year and will have possible increase in 2011 if the economic recovery continues.
“Large financial services might require large spaces at MBFC but there are smaller funds or companies which are not suited for that location… Raffles Place is not a concern, I might be more worried about Robinson Road instead, although it is still too early to tell.”
Lynette Leong, CEO of CapitaCommercial Trust Management, said that there are signs that office demand in the country has recovered and rentals in the office market have reached a trough. “We do not think there will be a significant hollowing out of office space from Raffles Place.”
She added that given the rebound in demand, vacated space could easily be filled with tenants who look for expansion, or new tenants attracted to the area.
However, Ms. Leong said that the 4.5-million-sq-ft uncommitted new office supply projected for the next two years remains a question as to when the office market rentals will recover and to what extent.