ST : Older office buildings taking on competition

12 Feb 2011,
Older office buildings taking on competition

Upgrading and makeovers in the works for those in prime CBD areas
By Esther Teo

LANDLORDS of older buildings in the traditionally prime areas of Raffles Place and Robinson Road are not taking the emergence of new blocks in areas like Marina Bay lying down.

Renovation works, ranging from simple upgrading to full-scale makeovers, are being undertaken to give ageing Grade A offices a smarter new face.

While the booming economy is certainly helping landlords as firms expand and take up more space, early signs are that the makeover strategy is working.

Leases are being renewed and new tenants signed up - with some even paying record rents.

But experts say it is still too early to determine how the older blocks will fare - with the age and quality of each building determining if it can keep tenants.

It is also hard to put a finger on any firm trend as many companies have taken out pre-commitments for space in new blocks such as the Marina Bay Financial Centre (MBFC) and Asia Square, but have yet to physically relocate.

This means occupancy rates and rents at older buildings are still holding up - for now.

Pontiac Land Group - which owns Centennial and Millenia towers - will lose a major tenant when Citibank goes to Asia Square. The bank's employees, some of whom are also at Capital Square, will move out in stages, from the last quarter of this year through to 2013, as existing leases expire. But the firm said that over the next few months, it is confident of achieving a pre-commitment level of about 60 per cent of the space that will be vacated by Citibank this year.

Replacement tenants include PetroChina International (Singapore), which will occupy about 70,000 sq ft by this year, said Pontiac Land.

'We believe that (ample parking space in a prime location) is a strong feature about Millenia Singapore that MBFC cannot meet,' the firm added.

Mr Andy Tan, executive vice-president of MEAG Pacific Star Asset Management - the manager of Capital Square - said Morgan Stanley, Bloomberg and Aberdeen Asset Management have recently renewed their leases, with some expanding their space by up to 46 per cent.

Capital Square in Raffles Place houses units of Barclays Capital and Macquarie, which have announced their move to MBFC. Mr Tan said that Pacific Star secured 180,000 sq ft of lease renewals and expansion last year alone, and is even signing new tenants from the IT and chemical sectors at record rentals.

CapitaCommercial Trust (CCT) is also planning to smarten up Six Battery Road in a bid to get higher rents.

Standard Chartered Bank and Nomura are moving at least part of their operations from Six Battery Road to MBFC, so CCT will take advantage of the downtime during tenant changes to include energy-saving features.

'Of the 65,600 sq ft of lettable area expected to be upgraded and available this year, 52 per cent has already been pre-leased to new and existing tenants,' said Ms Lynette Leong, chief executive of CapitaCommercial Trust Management Limited.

Buildings older than 15 years and strata-owned ones are expected to be most vulnerable to the siren call of Marina Bay and newer offices.

Knight Frank's director of office space, Mr Robert MacDonald, said investors will probably have to spend plenty of cash to smarten up these blocks while also providing attractive incentives if they want to keep tenants.

He said that Centennial and Millenia towers will be the ones to watch once Citigroup and Baker & McKenzie vacate.

esthert@sph.com.sg