Massive rental gap seen between city fringe and rest of island business parks

Landlords are scrambling to upgrade their properties.

The two-tier market of business parks in the City Fringe and business parks in the Rest of Island has recorded a further divide in the third quarter of 2014, according to CBRE.

The rental premium has increased to 33% between City Fringe and Rest of Island business parks in Q314, from 29% a year ago. City Fringe business parks are located just outside the URA’s definition of Central Area including Alexandra and one north.

CBRE noted that this widening gap can be attributed to differences in quality and leasing interest as well as commitment rates between those in City Fringe and the others in the Rest of Island.

The business park buildings in City Fringe locations tend to be newer products with higher specifications and more importantly, have better connectivity due to its locations.

However, occupiers registered some interest in refurbished business parks with higher quality specifications in the Rest of Island.

With the need to back-fill space vacated by occupiers, landlords in older business parks have had to upgrade their buildings to match competition posed by the new buildings in this segment of the market. 

This is besides having to price rents competitively. Older business park buildings including 1 Changi Business Park Avenue 1 and The Signature completed asset enhancements recently, triggering interest from cost-sensitive occupiers. The market recorded some increased level of leasing activity in these older business parks.

Based on CBRE’s basket, the average rent of business parks in the City Fringe stayed flat from the previous quarter, Q2 2014, at $5.50 psf/ month. Average rents of Business Parks in the Rest of Island dipped 2.6 per cent to $3.70 psf/ month.

“Occupiers are more keen on higher specifications, quality developments which the City Fringe has been able to provide. The location and connectivity are also important considerations which prompt occupiers to pay the premiums in rent. This flight to quality has hollowed out the older business parks in the Rest of Island, leading to the rent divergence,” said Michael Tay, Executive Director, Office Services