Multinational oil services companies are pulling out of Singapore and relocating to Malaysia. According to the Financial Times, US Oil and Gas Company McDermott, French Oilfield Services Company Technip and Olso-listed Engineering Contractor Subsea 7 have relocated to Kuala Lumpur, adding to salt to the already wounded state, plagued by low crude oil prices. In a bid to reduce their business expenditure, these companies have relocated to Malaysia where rental cost of commercial office space and staff housing are significantly lower than Singapore.
The oil services companies aim to take advantage of significant savings to buy/lease cars in Malaysia as Singapore is the one of the world’s most expensive places to own a car because of the Certificates of Entitlement (COE); and more importantly the proximity of Malaysia to their customers makes it an attractive place to relocate their business. The recent slump in the Malaysian Ringgit acted as a catalyst as these firms can get more mileage out of the country’s weaker currency.
Subsea 7 is restructuring and streamlining its business operations. It’s retaining 3 of its functions in Singapore – a logistics base; an office managing offshore personnel and a unit handling maintenance and repairs.
The oil services companies are not the only businesses seeking to reduce cost. Banks and financial institutions are aggressively reducing their footprint in Grade A buildings in Singapore following cuts in jobs and closure of some business units. RBS was reportedly looking to give up two and half floors in the South Tower of One Raffles Quay in Raffles Place. They occupied 130,000 sf of Grade A space in One Raffles Quay and sublet one floor to Coutts, its former private banking unit. RBS has already exited 60,000 sf of space at One George Street as the lease came to a natural expiry at the end of March. It is looking to consolidate its trading and sales operation to a staff strength of 200 and shutting its corporate banking, transaction banking and debt capital markets business units.
ANZ could be giving up 20,000 sf of prime Grade A commercial space at Ocean Financial Centre. Their leases are up for renewal in the third quarter of this year.If that happens, they could trim the office space they occupy in Ocean Financial Centre from 210,000 sf to 190,000 sf, over eight floors, thus freeing up level 18. ANZ has ceased its business lending to SMEs in 5 Asian markets, cutting 100 jobs. ANZ also has its back room operations in Mapletree Business City in Pasir Panjang occupying some 70,000 sf.
RHB could be letting go 23,000 sf of prime Grade A office space in Ocean Financial Centre on the 8th floor. Elsewhere, BOAML is planning to give up the top floor of the 6-storey harbourfont building it currently occupies. The top floor houses its back room operations in support of the group’s non-US wealth management business. It currently occupies 216,561 sf over 5 floors.
A hordes of office space was committed by tenants in the aftermath of financial crisis in 2010-11 as businesses rebounded and expanded. However, recent changes in policies by Monetary Authority of Singapore (MAS), coupled with the China’s economic slowdown, banks and financial institutions find themselves burdened with more office space than they require. Standard Chartered Bank used to occupy 512,000 sf over 24 floors in Marina Bay Financial Centre Tower 1 but today it has reduced its space to 414,000 sf over 20 floors. Over at 6 Battery Road where it has a total of 129,000 sf of committed space till 2020, it has managed to sublet 52,000 sf out.
The situation does not look too rosy especially with major landlords and commercial REITS. With a further 4.4 million sf of Grade A office space due for completion this year (majority in Raffles Place/New Downtown/Tanjong Pagar) as outlined in our article published earlier, compounded by lower demand from existing companies, this year could potentially be a year for ‘flight to quality’ for businesses that are looking to expand and relocate from their existing premises to prime Grade A office space. One suspects major landlords are likely to offer incentives in the form of longer rent free period and potentially fitting-out cost to try and fill their commercial office spaces amidst a slower and uncertain economy.
HOME|Time for Flight to Quality