The recent news about Daimler and Beca moving from the CBD to Westgate Tower has highlighted the potential in decentralised office space as well as the attractiveness of such space. Decentralisation of office space uses in Singapore has only taken off recently with the completion of several high quality office buildings in the suburbs. Previously, decentralised office space was located mainly in the city fringe (Novena) and eastern corridor (Tampines). In the past couple of years, more Grade A office buildings have mushroomed in the western region of Singapore. This includes The Metropolis, Westgate Tower and JEM Office Tower, which collectively contribute 1.7 million sq ft of office space (60.7% of decentralised stock).

Looking ahead, two upcoming decentralised office buildings are expected to complete by 2018 – Woods Square in Woodlands, a northern suburb, by private developer Far East Organisation, as well as the yet to be named JV development between Lend Lease and an Abu Dhabi sovereign wealth fund in Paya Lebar Central, in the eastern region of Singapore.

Tenant type and attractiveness of decentralised space

Decentralised office space caters to a different set of occupiers, typically footloose tenants who do not require a presence in the CBD, or firms that are not eligible for business park space. Additionally, decentralised office space appeals to price-sensitive tenants seeking lower rents. With gross effective rents in 2Q15 averaging some SGD 6 to SGD 7 per sq ft per month for decentralised office space, there could be some 15% savings when compared to CBD rents, which average between SGD 7 and SGD 10 per sq ft per month. Moreover, decentralised office buildings are generally located close to transport nodes and major expressways, attracting a diverse group of occupiers, from business services firms to providers of industrial services and even educational institutes.

Outlook

The future of decentralisation continues to look viable and attractive to corporate occupiers as these newer buildings offer lower overhead cost, with efficient floor plate designs, such as internal staircases to connect office space, and are easily accessible between different parts of Singapore.

However, the effect of decentralisation on CBD rents is expected to be minimal due to the comparatively small stock of approximately 2.8 million sq ft of decentralised quality office space, in contrast to the 28.3 million sq ft of office space in the CBD.

Instead, decentralised office space can complement office use in the CBD as it enables efficient allocation of resources where the support functions of corporate occupiers are located in such space, while main functions are housed in the CBD. Going forward, this positive momentum in the decentralised office landscape requires continued support from the authorities, in terms of the offering of commercial and/or white land sites[1] outside of the CBD, in attractive locations optimally served by transport and other business infrastructure.

[1] White sites can be developed into a mix of commercial, residential or hotel components, depending on the quantum set by the government planners.

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