CBD offices lose out to business parks as tenants desperately slash costs

Rents in business parks are over 50% cheaper.

Cost-cutting is king in land-scarce Singapore, and more firms are opting to ditch their glitzy central offices for inexpensive business park space.

According to a report by DBS, many tenants are giving up large chunks of prime office space to move to the suburbs, led by technology, media, and R&D companies.

DBS noted that rental differentials versus Grade A offices have widened to 50% for business parks. Meanwhile, the rental differential between the Central Business District and the suburbs has widened to a staggering 70%.

“By moving large swaths of operations outside the CBD, firms are able to defray high operating costs while maintaining a leaner outfit in the CBD,” DBS said.

For example, Google and Covidien are expected to move to Mapletree Business City 2 when the business park completes in 2016. In addition, the likes of Daimler Chrysler and Great Eastern Life have opted to move to Westgate, where reported rents of S$6.00-6.50 are still at a fairly significant discount to the CBD.

Apart from the threat of vanishing tenants, DBS said that landlords also have to grapple with smaller leases by new occupants.

“From our discussions with various landlords, we understand that while leasing enquiries from these new sectors remain brisk, the areas leased are for smaller floor plates of <2,000 sqft. Even larger tenants are typically taking up smaller spaces of <100k sqft, a sharp contrast from the 100-250k sqft sizes seen during 2010-12,” said DBS.