Its stabilisation strategy includes subdividing and fitting out floors, attractive rental rates and ESG considerations
IOI Central Boulevard Towers, the newest property in the Central Business District (CBD), has added 1.24 million sq ft of space to Singapore’s Grade-A office stock. The development features a 16-storey East Tower and a 48-storey West Tower, both atop a seven-storey podium.
Despite the size, consultants remain sanguine about the supply situation of the Grade-A office as the IOI development’s occupancy crosses the 75% mark.
David Tibbott, managing director of asset management at IOI Properties Singapore, says: “When I joined the company last January, our commitment rate was between 38% and 39%. We are approaching 75% with a clear pipeline to stabilise occupancy in early 2025.”
The development showcases 120,000 sq ft of lush green landscaping with Central Green, a 60,000 sq ft sky park on the seventh floor. The sky park spans 160m in length, equivalent to three Olympic-sized swimming pools. Central Green also caters to those who plan to stretch their legs during the work day with a 200m jogging track. A new dining experience, Sospiri by ilLido Group, is on the same floor and blends in with the sky park.
To encourage tenants to go car-lite, the development is directly connected to the Downtown MRT Station and has 327 bicycle lots with comprehensive end-of-trip facilities, including changing rooms with showers for tenants to freshen up after cycling or jogging to work. Link bridges seamlessly connect IOI Central Boulevard Towers with Asia Square Towers and One Raffles Quay, facilitating pedestrian access across the entire CBD, including Raffles Place, Marina Bay and Shenton Way MRT stations.
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The two-storey car park also includes three electric vehicle (EV) charging points, with plans to expand to 40 by 2030.
For its owner, IOI Properties Group, the new development is part of a growing portfolio in Singapore. The Bursa Malaysia-listed group beat six others to win the white site at Central Boulevard in a government land sale tender in November 2016 with the highest bid of $2.57 billion or $1,689 psf per plot ratio (psf ppr).
IOI Properties was the sole bidder for a white site at Marina View in September 2021, with a bid of $1.508 billion ($1,379 psf ppr). This site will house the 530-room luxury hotel, W Singapore–Marina View, and the 683-unit W Residences, which is set to be launched later in the year.
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Elsewhere in Singapore, IOI Properties owns 50% of South Beach, as well as 50% of Seascape and 65% of Cape Royale, both on Sentosa.
Focused on stabilising IOI Central Boulevard Towers
“My focus is on getting this asset stabilised, overseeing the asset management function, getting it full and getting the revenues stabilised,” Tibbott says.
Amazon will occupy the entire 16-storey East Tower, and Morgan Stanley is the anchor tenant of the 48-storey West Tower. With the two anchors, Tibbott is busy leasing out the remaining part of the West Tower.
Part of the strategy is to fit out a couple of floors. “The strategy with the subdivided fitted floors has been very well received. We’ve split the two floors into essentially eight fitted units. This space is 60% to 70% pre-committed before we started the work,” Tibbott says.
The East Tower received its temporary occupation permit last April, while the West Tower got it in June.
“You need to have a clear message on rentals and really understand where the market is, what’s going on and what other landlords are doing. I think we’ve managed that very well,” Tibbott says.
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For space not occupied by the two anchors, Tibbott reveals that the development has exposure to the pharmaceutical sector, “several big-tier law firms”, a mini anchor in the form of a co-working operator and crypto companies. “Pipelines are very strong. The market is in good shape,” Tibbott says. Three global law firms, Allen & Overy Shearman, Linklaters and Freshfields, are tenants in the building.
“The priority for us is to stabilise this asset, which we are doing. The leasing activity that has been achieved this year has been exceptional. We’ve leased 450,000 sq ft [in 2024],” he adds. “There’s no new supply coming significantly in and around the Marina Bay area [in 2025]. I think we’ll get some solid rental growth over the next few years.”
Amazon and Morgan Stanley are the two anchor tenants of IOI Central Boulevard / Photo: Albert Chua
Office sector weighed down by high fit-out costs
According to a report by CBRE dated Dec 19, 2024, leasing sentiment has been dampened by high fit-out costs, workplace transformation, ongoing hybrid work arrangements, a lack of clear demand drivers and possibly the delay of interest rate cuts.
“The completion and some excess availability in IOI Central Boulevard Towers has led vacancy rates in the Core CBD (Grade-A) office market to double from 3.6% in 1Q2024 to 7.8% in 3Q2024, which was the highest since 3Q2017, when it hit 8.4% following the introduction of Marina One,” CBRE says.
Tahlil Khan, executive director, Office Leasing Advisory, JLL Singapore, says vacancy rates are likely to fluctuate over the next 6 to 12 months, primarily due to the completion of Keppel South Central and space releases from tenant relocating to their new spaces. “Vacancy should stabilise and tighten thereafter. This improvement will be driven by the growing return-to-office trend and sustained economic growth, which should encourage business expansion and hiring. Rents may remain relatively flat for the next two quarters but are poised for recovery in the second half of 2025, supported by strengthening global demand, especially with greater clarity on the impact of economic and fiscal policies from the Trump administration,” he adds.
With progressive take-up in IOI Central Boulevard in 4Q2024, vacancy has improved for the Grade-A office sector to 7%. Gross effective rents for Core CBD (Grade-A) office remained unchanged for the third consecutive quarter in 4Q2024 at $11.95 psf per month. For the full year, Core CBD (Grade-A) rents grew by 0.4% y-o-y, a slower pace than the 1.7% rental growth in 2023, CBRE indicates. Tibbott has indicated that rents for some of the smaller leases are as high as $16 psf per month.
David McKellar, CBRE head of office services, Singapore, notes: “In response to heightened competition, landlords are increasingly offering incentives and looking at ways to increase leasing velocity such as speculative fit-outs for smaller units, extended rent-free periods for larger units and capital expenditure contributions, which help to provide flexibility and capex neutrality for tenants.”
Tibbott points out that many landlords have taken strong defensive strategies on renewals. “So, it’s not been easy by any stretch of the imagination. There has been a lot of consistent hard work from our leasing team and our agency partners,” he says.
Additional defensive strategies include attractive rental rates for renewals to prevent tenants from moving to a new building. Unlike in the US, where landlords pay for fit-outs or provide rent-free periods for the purpose, in Singapore, tenants pay for renovations, fixtures and fittings. If they move, tenants have to reinstate the property they are leaving and pay for new renovations.
“For a whole floor, that could be north of $5 million you have to reinstate and renovate,” Tibbott says. “Typically, leases are five-year leases with options to renew at open market rents. Smaller tenancies can be three years.”
CBRE says premium office spaces with superior specifications continue to be a significant factor influencing occupiers’ choices, with prime locations such as Marina Bay and Raffles Place remaining highly sought-after.
CBRE adds that businesses in the private wealth, asset management and legal sectors that consider real estate strategy part of their talent attraction and retention efforts showed a preference for buildings with superior attributes within the CBD.
Additionally, building specifications and environmental, sustainability and governance (ESG) considerations are increasingly shaping occupiers’ decisions. Tenants are prioritising buildings with green certifications and sustainable features to align with their corporate sustainability goals.
Towards the end of last year, CBRE observed a decline in shadow space from a peak of 0.7 million sq ft in 1Q2023 to approximately 0.2 million sq ft by 4Q2024. CBRE Research also expects Core CBD (Grade-A) rents to outperform last year’s growth of 0.4%, coming in at about 2% for this year, mainly driven by a higher GDP forecast, the continued flight-to-quality trend and limited future supply.
Tricia Song, CBRE head of research, Singapore and Southeast Asia, notes: “With IOI Central Boulevard Towers being the last development and no significant new supply expected in the Core CBD (Grade-A) for the next three years, we believe vacancy in this submarket has peaked. We anticipate rental growth in the Core CBD (Grade-A) will resume and accelerate once the excess space is absorbed, likely in the second half of 2025.”
McKellar adds that the average supply islandwide for 2025–2029 is expected to be 34% lower than in the past decade. “With the anticipated reduction in new supply over the next five years, tenants should act swiftly to secure their space. The significant decrease in average supply, coupled with sustained demand, will likely drive up rents and limit options for occupiers. It is crucial for corporates to establish clear workplace strategies that support the post-pandemic environment and align with their long-term goals, considering high fit-out costs,” he adds.
Cushman & Wakefield (C&W) expects supply to remain tight between 2025 and 2027 due to limited completions, including the delay in completing Shaw Towers’ redevelopment in the Beach Road area. “CBD Grade-A vacancy rates are expected to tighten between 2025 and 2027 supported by limited new supply and rising new office demand as gradual interest rate cuts and easing capital expenditure constraints take effect,” a recent C&W report says. In light of this, C&W expects Grade-A rental rates to increase by 2% to 3% in 2025 compared to 1% to 2% in 2024.
“According to our 2024 APAC Office Occupier Survey, about 32% of companies anticipate an increased office usage over time, with this trend being particularly pronounced in the technology, media and telecom (TMT) sector, where half of the respondents expect increased usage. The potential rise in space requirements could drive office demand, but this shift could take time as leases are typically signed for three to five years and existing space allocations are fixed,” agrees CBRE’s Song.
Tight capitalisation rates
Despite the cautious outlook, capitalisation rates for Grade-A office property in the Marina Bay and Raffles Place area remain tight. In 1H2024, capitalisation rates for Keppel REIT’s one-third share in Marina Bay Financial Centre (MBFC) Towers 1 and 2 were 3.3%, MBFC Tower 3 was 3.25% and One Raffles Quay was 3.15%. Asia Square Tower 2 was valued at 3.4%.
REIT managers have indicated that net property yields are slightly higher, at 4% to 4.5%. Nonetheless, compared with risk-free rates and bank debt, buyers relying on debt could experience a negative carry. This makes the creation of REITs for Grade-A properties in Singapore challenging. Khan points out that commercial mortgages are at close to 4% versus cap rates of 3.2% to 3.5% for Grade-A buildings.
When asked whether IOI Properties had any plans for an S-REIT, Tibbott says it is “something we want to explore” but remains non-committal when asked about IOI Central Boulevard Towers’ capitalisation rate. “It’s very hard to say because we still have a bit to go on the leasing side. There aren’t many transactions in the market telling us where cap rates are,” Tibbott says.
Despite the negative carry between bank debt and capitalisation rates, Hongkong Land’s management and Lee Yeow Seng, CEO of IOI Properties, have expressed an interest in placing their Singapore Grade-A properties in a REIT. Hongkong Land owns a one-third share in MBFC Towers 1, 2 and 3, and a one-third share in one Raffles Quay.
In IOI Properties’ 2024 annual report, IOI Central Boulevard Towers is valued at RM14.4 billion ($4.4 billion), while W Residences at Marina View is valued at RM5.1 billion.
According to Edgeprop Singapore, IOI Properties’ group CEO and major shareholder Lee’s family acquired Shenton House for $538 million through a private entity, Shenton 101. The price works out to $1,885 psf ppr.
“The intention is to redevelop Shenton House into a mixed-use development with premier Grade-A office space and luxury branded serviced residences. Shenton House’s significance is its location in Singapore’s ‘first CBD’,” Edgeprop Singapore said, quoting Lee.
“The purchase of Shenton House demonstrates my continued confidence in Singapore’s prime office and residential rental market,” Lee said.
Given tight capitalisation rates, an IOI office S-REIT may be some time away. Still, IOI Properties remains committed to expanding in Singapore, with its next major move being the upcoming launch of its W Residences this year.
