Offices see priorities shifting towards wellness, accessibility and facilities

This year has seen a wave of new gyms popping up in the Central Business District (CBD), such as the class-based and strength training boutique gym Anarchy Club, which has a 3,800 sq ft space on the fifth floor of 61 Robinson Road, and Sparkd, a 1,570 sq ft brain-body fitness gym located on the same floor. In July, S30 opened on the second floor of the Cecil Building at 137 Cecil Street, offering strength-training, and Lab Studios opened a pilates, barre and yoga studio on the second floor of a shophouse on Stanley Street in February.

Joining them is Sphere Gym, the 4,800 sq ft training and recovery gym that opened at Cecil Building last year, and Revolution spin studio, which debuted at Frasers Tower in 2021.

Luke Moffat, regional managing director and head of CBRE advisory and transaction services, Asia Pacific says that improved wellness facilities are becoming more popular due to a healthier lifestyle being sought after. This includes features like gyms, end-of-trip facilities, nursery rooms, massage rooms, good food and beverage services, and good-quality air filters – all of which are needed for staff to be well.

Moffat: The premium would be more significant if one compared a green-certified Grade-A building with an older Grade-B building that is not green-certified (Photo: Samuel Isaac Chua/EdgeProp Singapore)

CBRE’s 2023 Asia Pacific Office Occupier Sentiment Survey, released in June, found that office occupiers prioritise accessibility to public transport (71%), carpark (50%) and sustainable building features and operations (48%), as well as shared meeting space (45%), flexible office space (36%), F&B options on site (62%) and fitness facilities (45%).

Wellness has an even greater impact than sustainability, Moffat notes. Additionally, buildings with a high rating in terms of wellness and sustainability will benefit more than just the building occupiers – investors who come into the scene at a later stage are going to find these properties much more attractive and saleable.

Return to office was a consistent trend between the 2023 and 2022 surveys, with 69% of office workers placing greater importance on their work environment than they did pre-pandemic – driving the demand for higher-quality office space and future-proofed office buildings. CBRE’s survey also showed that 32% of companies intended to have their staff mainly at the office in 2023, up from 24% in 2022. Moffat stated that hybrid working will continue to be part of the landscape, allowing employees some flexibility.

Green rental premium

Although demand for ESG-certified office buildings is substantial, few occupiers are willing to pay a rental premium for such properties. According to the survey, fewer than 25% of respondents would be willing to pay higher rents to lease green space, with many of those only agreeing to pay a premium of less than 5%.

Moffat explains that the low rental premium is partly due to the high rate of green building adoption in Asia Pacific, with 43% of Grade-A office buildings being green-certified in 2022. However, he added that a large premium would be more likely if the comparison is between a green-certified Grade-A building and an older Grade-B building that is not green-certified.

In this case, an older building which has not undergone renovation, has older finishes, no amenities or view, would take longer to lease – in comparison to a new green building with better views, high specifications, and more amenities. As such, owners would invest in retrofitting their aged buildings to bring them up to the standards of the Grade-A office buildings of today.

Vacancy rates for Category 1 buildings declined to 9.2% in 2Q2023, matching vacancy levels in 2Q2020 when the pandemic had just begun (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Tight market conditions prop up rents

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In Singapore, the tight market conditions have kept the office market buoyant. Based on URA statistics, office rents in the Central Region have increased for the seventh consecutive quarter since 3Q2021. The URA office rental index increased by 2.3% q-o-q in 2Q2023, a slight reduction from the increase of 5.1% q-o-q in 1Q2023.

CBRE attributes the higher pace of rental increase in 2Q2023 to the prevailing tight vacancy levels in prime office buildings – vacancy rates for Category 1 buildings declined to 9.2% in 2Q2023, matching vacancy levels in 2Q2020 when the pandemic had just begun.

Expansionary sentiment subdued

However, rents may come under pressure in the second half of the year, due to the addition of a significant prime new commercial development, along with elevated levels of shadow space, notes CBRE. The project in question is IOI Properties Group’s IOI Central Boulevard Towers, which topped out on Aug 28. The Grade-A office development, with 1.26 million sq ft of office space and a 30,000 sq ft retail and F&B space at Marina Bay, is expected to receive its temporary occupation permit in 1Q2024.

When it opens, the building may become a focus for occupiers and CBRE notes that the vacancy rate could increase slightly.

Flight to new-build and flight to green will remain prominent trends in the office market, as vacancy rates are set to remain elevated throughout the year. This means office occupiers will have plenty of opportunities for upgrading, but CBRE notes that expansionary sentiment has been subdued due to the challenging macroeconomic environment.

New buildings will take longer to fill up as office occupiers retain a prudent attitude towards portfolio planning, as the sentiment suggests that even though flight to quality and focus on green buildings remain key trends, the willingness to pay a higher rental price is still low.