Admit it, Singaporeans are crazy over property. Through the generations, property has allowed people to move up socio-economic ladders through a combination of capital appreciation and leverage which a property investment offers. However, this is mainly concentrated on the residential segment of the market.
Oft because of its higher quantums and lack of information, office properties as an asset class is less often talked about amongst Singaporeans. Whilst URA offers no official segmentation of office properties, it is generally understood that there are 3 main categories of office properties:
1. Grade A Offices: The Crown Jewels of this segment. According to a 2016 Business Times article, “CBRE Research defines a Grade A building as a landmark building with modern flexible layout and floor plates above 18,000 square feet (sq ft). The building size is above 300,000 sq ft and offers underground parking and good lift services zoned for passengers and goods delivery.
It offers high technical specifications (such as raised floors, 24-hour cooling system) and good quality building services (for example, security, CCTV), and is professionally managed. The building should also be located close to public transport.
Out of a CBD Core office stock of about 27.6 million sq ft, approximately 43 per cent of this stock is classified Grade A CBD Core. The rest of the office stock is classified Grade B CBD Core.”
This segment is where most of the action lies. More and more developers are keen to enter this space, as the gulf between Grade A and other types of offices widens. The continued demand for these high quality offices have really come from an explosion of co-working spaces. Whether or not co-working spaces are a fad or here to stay, especially with the Covid-19 pandemic raging on, remains to be seen.
A DBS research study shows that in 2020, we expect more than 1mil sqft of new Grade A CBD office space to enter the market, many of which are refreshments done to older properties on site. If you know, you know but Afro-Asia Building used to boast of Uncle Sam’s Claypot Rice, a hugely popular lunch joint for the CBD folks.
Writing this in the midst of the Covid-19 pandemic, the outlook for offices in general look relatively pessimistic in the short term. Savills predicts 2020 Grade A CBD rents to decline 10% YoY, bucking the general upward trend we’ve seen over the last few quarters.
Examples of Grade A Offices include Marina Bay Financial Centre, Asia Square and 6 Battery Road
2. Grade B Offices: Seen as the slightly more inferior sibling to Grade A offices, these are usually slightly older properties, which may not be as presentable as Grade A ones in terms of aesthetics, floor plate optimisation and security etc. What you lose out on however, is compensated with a rent that is on average, 25% cheaper. Whilst Grade A offices are typically rented by large banks and MNCs, Grade B ones are more catered towards smaller international outfits, mid-sized law firms and successful MMEs and SMEs.
Examples of Grade B offices include many smaller buildings along Shenton Way, Robinson Road and Cecil Street.
3. Grade C Offices: The lowest grade of offices in Singapore, these are usually much older properties with very basic features. They will not have fancy air-conditioned lobbies or large floor plates which you can optimise. Some may not even have lifts. Expect the upkeep of the common areas to be mediocre or average at best. I would believe majority of the tenants here will be SMEs and start ups. If analysed well, they may be some attractive choices in this segment.
*Disclaimer* All photos are not my own and have been taken off the internet. This post represents my views as an individual and is not representative of my company or any organisation I am affiliated to.