Marina Bay rents to head north over longer term

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Average gross rents for Grade A offices in the Marina Bay area have commanded a premium of 17.5 per cent over those at Raffles Place in the first quarter of this year, reports MINDY TAN

EVEN as businesses are drawn south to Marina Bay from the "traditional" central business district (CBD), rents are expected to head north following a period of consolidation. Average gross rents for Grade A offices in the Marina Bay area commanded a premium of 17.5 per cent over those at Raffles Place in the first quarter of this year, at $10.12 per square foot (psf) per month, according to Cushman and Wakefield, versus $8.61 psf per month in the traditional CBD.

"Last year, the premium was about 16 per cent for the whole of 2012, but was more volatile," noted Sigrid Zialcita, managing director for Cushman and Wakefield's Asia-Pacific research team. "We believe that in current market conditions, the market is reverting to a premium of around the 17 per cent level, which is expected to rise once we see a sustained recovery in overall economic sentiment."

Moray Armstrong, executive director, office services at CBRE, noted that Marina Bay has historically commanded higher office rents. One of the factors driving demand is the large contiguous floor plates of more than 30,000 sq ft, which are ideally suited to the requirements of major multinational companies and financial institutions.

"Generally, the Grade A office market, which includes Marina Bay, has been enjoying relatively healthy take-up over the past few quarters," said Mr Armstrong. "Occupier demand has diversified, with industries such as insurance, commodities, business services and the legal sector driving demand, complementing the financial industry which has remained relatively quiet. While the Grade A market rents have corrected close to 15 per cent from their previous peak in Q3 2011, most occupiers have taken advantage of this relative cost competitiveness to relocate into the best quality new developments."

The better rents commanded at Marina Bay are partly due to the fact that the Marina Bay basket represents newer buildings compared with the other micro-markets (including Raffles Place, Marina Centre and Shenton), said Mr Armstrong. Office developments in Marina Bay typically offer higher specification and larger contiguous floor plates of more than 30,000 sq ft, which are ideally suited to the requirements of major multinational companies and financial institutions, he added.

Cushman and Wakefield's Ms Zialcita said that CBD rents in the Marina Bay area were likely to stay unchanged for the rest of the year, with the rate of increase restrained by upcoming supply from Asia Square Tower 2.

"Pre-commitment levels at Tower 2 are known to be about 12 per cent at the moment," she said.

Asia Square Tower 2, which is expected to generate about 790,000 sq ft of office space in Q3 this year, made the news after German financial services provider Allianz Group inked the first transaction to lease about 90,000 sq ft, the biggest CBD leasing transaction last year.

Following this period of consolidation, rents in Marina Bay are expected to resume their upward trend. "Rents are expected to creep upwards from 2014, after the next chunk of supply from Capita Green is released. With limited supply in the area for the next two years thereafter, and strong economic growth fuelling absorption gains, we expect rents in the Marina Bay area to breach $12 psf over the next two to three years," said CBRE's Mr Armstrong.

"The future success of commercial development in Marina Bay looks assured with impressive upcoming developments such as Asia Square's Tower 2, which incorporates the Westin Hotel V on Shenton scheduled to complete mid-2016, and Marina One. At around 1.8 million sq ft, the latter project represents the largest office development currently being undertaken in the city." Previously reclaimed land, Marina Bay today is home to developments including the iconic MBFC, Marina Bay Sands and the upcoming Marina One. Developed by Khazanah Nasional Berhad and Temasek Holdings, Marina One comprises two residential towers, two Grade A commercial towers and a retail podium.

Commenting on the residential component, Kemmy Tan, chief operating officer of M+S, said that there has been healthy interest for the residences, which range from one- to four-bedroom units, including penthouses. Comprising 1,042 units, Marina One Residences is slated to be launched in the second half of this year.

On the office front, Marina One will offer floor plates of up to 39,000 sq ft, and two high-density floors of about 100,000 sq ft each, located on higher floors. The two 30-storey towers will offer about 1.88 million sq ft of net lettable area. For its retail area, M+S is looking to secure new-to-market retail concepts and introduce novel dining experiences for a signature restaurant space, said Ms Tan.

Spectacular leasing

MBFC is currently the largest integrated mixed-use development, featuring three office towers (nearly three million sq ft), two residential towers comprising 649 apartments and penthouses, and about 179,000 sq ft of retail space. As part of the spectacular leasing performance exhibited by office developments in Marina Bay, both Tower 1 and Tower 2 at MBFC were 100 per cent pre-let upon completion. Tower 3 is more than 85 per cent leased.

Within its residential portfolio, the 221-unit Marina Bay Suites – which is expected to be completed later this year – is already 88 per cent sold, according to Raffles Quay Asset Management, which manages both MBFC and One Raffles Quay.

"It is amazing to see how Marina Bay has transformed so rapidly with the completion of new iconic landmarks in recent years, galvanising shopping, entertainment and business all within one location. MBFC, Singapore's first and largest mixed-use integrated development within Marina Bay, is home to many well-known companies and offers a 24/7 worklive- play environment making it a truly global business hub," said Cynthia Wong, deputy chief executive officer at Raffles Quay Asset Management.

"Its waterfront location, state-ofthe- art facilities and thriving community put it at the forefront of the rise of major urban centres around the world. We are honoured to have redefined the Marina Bay skyline and set the pace in URA's vision for a vibrant and cosmopolitan Marina Bay."

Dubbed the new extension of the traditional CBD, Marina Bay's large regular land parcels and development sites zoned "white" by the Urban Redevelopment Authority afforded developers many exciting opportunities. A game-changer, City Developments Limited's The Sail @ Marina Bay – when launched in October 2004 – was the first 99-year leasehold residential project in the Marina Bay/Raffles Place area to be launched (other than Icon at Tanjong Pagar which was launched a year earlier).

"At that time, there was some apprehension in the market on livework- play (city-living concept) as this was still a relatively new concept," said Joseph Tan, executive director, residential, CBRE. At $900-$950 psf, it was priced relatively higher than the average price of projects in the area, he added, noting that Icon was launched at $550 psf in April 2003.

That said, the pace of sales was healthy, and it took only three to four months to sell the 681 units in the tower. Following the government's announcement in April 2005 that it had approved the construction of two integrated resorts – one of which was Marina Bay Sands – the launch of Tower 2 of the Sail in May 2005 saw all 431 units sold out in two days at about $1,200-1,250 psf, added Mr Tan.

"Although the residential property market in 2004 was somewhat sluggish, CDL saw great potential in the Marina Bay site," said Chia Ngiang Hong, CDL's group general manager. "We take great pride in our bold step to launch the prime waterfront site as a residential icon and introduce the concept of inner city and waterfront living in Singapore."

Source: Business Times, 27 May 2013