The future of business and science park
Nov 04, 2011
Sheena Chua
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Come 2012, the expected completion of 2.15m sq ft worth of business and science park space – dedicated to ancillary, support, and other back-end functions like processing and research and development – could be putting pressure on rental prices.
(with the ramping up of business and science park spaces, it is unknown if rental prices will drop or remain stable. Image courtesy of Thinkstock.)
CB Richard Ellis (CBRE) expects up to 63% of this new space to be either pre-committed or owner-occupied, while the remainder (which takes up 803,000 sq ft) is space for lease. “We expect rents to drop by 10% next year compared to other views from the market that say rents may drop up to 30%; we don't think that is the case,” revealed CBRE director and head of research for South-east Asia Petra Blazkova, who cited an October report by Standard Chartered, which suggested that business park rents could tumble 30% over the next two years to $2.50 per sq ft (psf) a month.
CBRE also projected the effects of the current global economic slowdown on rentals in the foreseeable future: an increase in vacancy rates, and consequently, a decline in rents over the next two years by 12-16%. Its sombre forecast contrasts this year’s strong demand; from Q2 to Q3, CBRE estimated that the average occupancy rate of business and science park space reached to 92.4%. Indeed, the first nine months saw business and science park leasing activity flourishing. During that period some 1.09m sq ft was absorbed (Comparatively, the five-year net absorption averaged 1.21m sq ft.) and the average quarterly rent upped 3.5% to $3.85 psf in Q3.
Other industry insiders beg to differ. Said Cushman & Wakefield managing director for research services in Asia Pacific Sigrid Zialcita to the Business Times, “Conservatively, we are looking at rates to stabilise rather than fall. But then again, if the situation starts to worsen, risk-averse landlords may hit the panic button. But I don't think we're in that situation at all.”
Colliers International industrial director Tan Boon Leong agreed. According to Colliers, the expected addition of 803,000 sq ft is “a small supply coming on-stream”, and the total industrial stock of 48m sq ft should be taken into account. Said Tan, “One clear advantage [business parks have] is rental. Business park space costs approximately $4-5 psf per month, compared to suburban office space, which costs approximately $6-7 psf per month. CBD space will cost between $8 and $10 psf per month, maybe even above $10 psf per month.”
Following the introduction of 2.15m sq ft of business park space in 2012, 2013 will herald some 993,000 sq ft more, primarily catering to expanding companies and establishing operations in Singapore. Noted Blazkova, “Bearing in mind that the amount of upcoming speculative supply is lower than the total space demanded in the first half of 2011, and assuming that the current economic situation continues into the next two years, most of the available space is likely to find tenants. However, any correction in office rents is still likely to impact business and science park rents, as landlords need to be competitive to encourage decentralisation on the back of lower office rents. Likewise, they need to position competitively to retain tenants who may be attracted to upgrading to office space.”
Zialcita added, “Right now, perhaps with all the volatility, a lot of companies are [putting plans] on hold and being cautious. But I don't see that happening over an extended period. Companies that don't have to be in the CBD will definitely look at business parks as an alternative.”
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