Asia Square Tower 2 sets the pace for Grade A office space in 2013

AFTER a decade's absence, the five-star Westin brand will resurface in Singapore, this time in the landmark Asia Square Tower 2 in Marina Bay. The 46-storey Asia Square Tower 2 is set to be completed by early September, while the 305-room Westin Singapore Marina Bay hotel, located on the 32nd to 46th levels, is scheduled to open on Nov 1.

Anecdotal evidence is that the Westin has already turned down racing teams looking to book the entire hotel during the Singapore Grand Prix scheduled for Sept 20 to 22. "The hotel is extremely popular," says Mark Rada, project director of Asia Square, which is owned by MGPA Asia Fund III — a fund managed by MGPA, a private equity real-estate investment advisory firm. The hotel will feature two F&B outlets, one of which will be a 24-hour café while the other will have a micro brewery-restaurant-lounge concept. There will also be a ballroom, which is ideal for weddings and corporate events, as well as conference room facilities.

Besides the hotel, Asia Square Tower 2 will also contain 780,000 sq ft of Grade A office space, and 40,000 sq ft of retail and F&B space. Two months ago, international financial services giant Allianz Group agreed to take up three floors totalling 80,000 sq ft in Asia Square Tower 2, becoming the first anchor tenant in the new tower. Allianz Group will be relocating its businesses and 500 staff from several floors in Centennial Tower and other locations by year-end. This is considered the biggest office deal in the CBD since global insurance broker Marsh & McLennan took up 97,000 sq ft of office space at Asia Square Tower 1 in 2011.

The 43-storey Asia Square Tower 1 was completed in mid-2011 and contains 1.26 million sq ft of office space, which is 85% let to date, according to Chris Archibold, head of markets at Jones Lang LaSalle, the sole marketing agent for Asia Square.

Asia Square Tower 1 and Tower 2 have a total of two million sq ft of office space. In 4Q2012, apart from securing Allianz Group as an anchor tenant for Asia Square Tower 2, MGPA also signed on seven new tenants in Tower 1. They are financial services company Fidelity Investment, which took up 12,000 sq ft; IHS, which has taken up 32,500 sq ft of space; financial broker Marex Spectron, investment firm Dimensional Fund Advisors and Winecard, which signed up for 5,000 sq ft each in the tower; XL Insurance Co, which took up 18,000 sq ft and Allied World Assurance Company, with 9,000 sq ft. The only spaces still available in Asia Square Tower 1 are on the high floors, from the 36th to 39th levels, and pockets in other floors, which are being filled up. "We hit a milestone at the end of last year when we achieved one million sq ft, which is the halfway mark for the entire office development," says Luke Moffat, head of leasing at MGPA.

Sole Grade A office tower completing in 2013

Most of the Grade A office buildings with large floor plates of 30,000 sq ft that were completed over the last two years are already substantially or fully leased, notes Moffat. These include such as Asia Square Tower 1, OUE Bayfront, Marina Bay Financial Centre (MBFC) Towers 1, 2 and 3, as well as Ocean Financial Centre.

However, Asia Square Tower 2 will be the only new building in the CBD that's being completed this year and offering Grade A office space with 30,000 sq ft floor plates, points out JLL's Archibold. "Both large and smaller occupiers are definitely looking at large floor plates for space efficiency," he adds.

The other major Grade A office development that's being completed in 2Q or 3Q this year is Ho Bee Group's The Metropolis, which will have 1.058 million sq ft of office space. The Metropolis is located next to the Buona Vista MRT station, and such decentralised locations near MRT stations have proven to be popular. The Metropolis has secured two large tenants who have committed to taking up 80,000 to 100,000 sq ft each in the building. Companies such as Procter & Gamble, Shell and Neptune Orient Lines have shown interest in the building, according to leasing specialists Corporate Locations in its February 2013 report.

In the CBD, the Bank of India is relocating from The Corporate Office on Robinson Road to 158 Cecil Street, and advertising company GroupM has expanded significantly, leasing 42,000 sq ft of office space in China Square Central. French bank Credit Industriel et Commercial has also leased 31,000 sq ft in MBFC Tower 3, according to Corporate Locations.

"There's a good pipeline of tenants that have leases expiring by the end of this year and 2014, and there's very little to choose from in the market if they want Grade A office space in a new building in the CBD during that period," says Archibold. "We've actually been very busy in the last few months, with a lot of requests for proposals coming up, mainly occupiers looking at their future office space needs."

Overall, the office supply pipeline remains well distributed geographically over the next four years (2013 to 2016), according to CBRE in its 4Q2012 Market View report. Grade A supply in the CBD remains "limited", according to CBRE. There will be about 3.35 million sq ft at Asia Square Tower 2, with more than 780,000 sq ft to be completed in 3Q2013. CapitaGreen, a redevelopment of the former Market Place Car Park into a premium office tower with 720,000 sq ft of office space and floor plates of 20,000 to 25,000 sq ft, is scheduled for completion at end-2014. In the longer-term, there is Marina One, with 1.85 million sq ft in late-2016.

"This average new completion of 816,000 sq ft per annum is a significantly lower delivery of new prime space than the past four years' office supply at an average of 1.35 million sq ft per annum," notes Moray Armstrong, CBRE's executive director of office services. "The new supply is therefore considered reasonable and manageable and we do not subscribe to any oversupply concerns."

Average Grade A office rent in 4Q2012 was $8.90 psf per month, according to data from JLL. This is about 12.75% lower than the last peak of $10.20 psf achieved in 3Q2011. JLL's Archibold expects Grade A office rent in 1Q2013 to stay flat at the current levels.

Robust demand

Demand for office space had been relatively healthy last year, with net absorption of 1.9 million sq ft, according to JLL. This is slightly higher than the net absorption level of 1.8 million sq ft in 2011, although it pales in comparison to the 2.4 million sq ft achieved in 2010. The 1.9 million sq ft level is still higher than the 20-year-average of 1.6 million sq ft, says Archibold. "We've had pretty robust demand over the last three years," he observes. "The investment banking side of the financial sector may be a bit quieter, but there's a pickup in other sectors, including law firms, resources and insurance companies."

According to MGPA's Moffat, the rents achieved for the office space at Asia Square Tower 1 is still in the "low- to mid-teens". While there hasn't been an uptick in rental rates in the last 12 months, "we're confident it's going to improve, going forward", he adds.

In Asia Square Tower 1, the retail and F&B space is fully leased, while in Tower 2, that segment is already 50% pre-leased. Besides a food court, new tenants coming into the building include tapas bar FoodBar DaDa, which is currently at Robertson Quay, a Japanese restaurant, as well as Starbucks, Subway and a new gourmet sandwich place by Cedele's. There will also be a Gong Cha bubble tea outlet, Red Mango yoghurt place, as well as services such as dry cleaners and a florist, says Asia Square's Rada.

"In Tower 2, we have a few more proper restaurants, and a lot more food kiosks," adds Moffat. "We wanted to have a good mix of restaurants so the majority of people will get to enjoy the F&B outlets."

This story first appeared in The Edge Singapore weekly edition of Feb 18-24, 2013.

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