Singapore Office Sector

Kim Eng on 19 Nov 2012

Mega projects underway. The design for DUO, one of two mixed-use projects to be jointly developed by Singapore and Malaysia following the historic land swap for Malayan Railway land, was recently unveiled by world-renowned architect Ole Scheeren. The development at Ophir Road is expected to be completed in 2017, along with its sister site Marina One at Marina South. Together, these two mega projects will add nearly 2.5m sq ft of prime Grade A office space in that year.

Redefining the Bugis skyline. M+S Pte Ltd, a 60:40 JV between Malaysia’s Khazanah Nasional and Singapore’s Temasek Holdings, will begin construction of DUO next year. The SGD3b development will comprise 660 prime residential units, 580,000 sq ft of Grade A offices, a five-star hotel and 80,000 sq ft of retail space. The residential units may be launched as early as 1H13, but we expect pre-leasing of the commercial elements to begin only in late 2016. DUO will offer prospective tenants a brand new option as the existing schemes in the Bugis area tend to be older, Grade B buildings. With the support of Khazanah, potential tenants are likely to also include Malaysia-based companies.

Launch of Marina One to follow. DUO’s sister site at Marina South, the SGD7b Marina One, has already broken ground even before an official unveiling of the full design. With a total GFA of 3.7m sq ft, the development consists of two office blocks with ~1.9m sq ft of prime office space, two residential blocks with 1,042 units and a retail podium of around 85,000 sq ft in NLA. When completed in 2017, Marina One
will join the likes of Marina Bay Financial Centre and Asia Square Towers 1 and 2 in the heart of Singapore’s New Downtown. Competition for tenants will be keen. Marina One and DUO may only
come on-stream five years down the road, but from now till then, there are other prime Grade A completions in the Central Business District amounting to 3.2m sq ft of space. Landlords will continue to face
competition from completed but not yet fully-leased developments (eg, MBFC Tower 3, One Raffles Place Tower 2 and Asia Square Tower 1), as well as secondary supply from returned space and also shadow space, which has been estimated at around 500,000 sq ft. In addition developments at decentralised locations will be actively soliciting for tenants looking for affordable high-quality space, but do not need a
Raffles Place or Marina Bay address.

Near-term demand set to remain weak. With the Singapore economy experiencing a QoQ contraction in 3Q12 and the government guiding for subdued growth of between 1% and 3% next year, we expect office
leasing demand to remain soft going into 2013. We maintain our HOLD calls on Keppel REIT (KREIT SP; TP: SGD1.09) and Singapore Land (SL SP; TP: SGD6.75) and our SELL call on CapitaCommercial Trust
(CCT SP; TP: SGD1.35), based on our expectation that office spot rents will undergo another 10% correction in 2013.