Moving back to the CBD?

Source : Today – 7 Jul 2009

LOWER occupancy rates and cheaper rents in office buildings around the central business district (CBD) may prompt some firms to move back into the city, property experts said.

In the second quarter, office rentals declined to less than $10 per square foot (psf) per month compared with a whopping $19 psf a month a year ago.

“Companies are beginning to re-look opportunities to go back to the CBD as rents are a lot more affordable than 2007,” said Ms Cheng Siow Ying, DTZ Debenhem Tie Leung executive director of business space. “Some offices which are already fitted out make the sums look good,” she told Today.

DTZ said in a release that “as the gap in rental values between the CBD and CBD fringe office space narrows, some companies, particularly those driven to relocate outside the CBD during the boom times in 2006-2007, are likely to return”.

DTZ added that monthly rents in Raffles Place, the heart of the CBD, fell 19 per cent quarter on quarter to $9.70 psf, close to the levels recorded at the end of 2006.

During the property market boom in 2007, many firms moved out of the CBD area to cheaper locations. For instance, banking group HSBC moved some of its operations to The Comtech, a building in Alexandra.

Meanwhile, property consultant Nicholas Mak believes that among the firms that will likely make a return to the CBD area are “small companies with less than 40 staff, as they are nimble enough to do so without having to take up two floors or more.”

“What we’re seeing now is a flight to quality,” said Mr Mak. “Generally, six months before the lease expires, people will be looking around and checking to see if it’s worthwhile to move. They’ve got to consider relocation and renovation costs, and it must make sense to stay there for at least two cycles, or six years. Moving again after three years doesn’t make sense.”

At the same time, property consultants have also reported increased enquiries about office leasing islandwide in the second quarter compared with the first. There has also been intense competition between landlords engaged in lease restructuring, too, they added.

In a separate report, property consulting firm CB Richard Ellis said Grade A office vacancy rose 3.6 per cent in the second quarter, up from 2.9 per cent in the previous quarter.

Still, property consultants expect the office rental market to remain soft as vacancies are expected to rise when developments including Marina Bay Financial Centre, 71 Robinson Road and 50 Collyer Quay are completed.