CISCO Systems is understood to be close to sealing a deal to lease about 110,000 square feet of space at UE Bizhub East at Changi Business Park. This may be the latest case of an MNC relocating from Singapore's Central Business District to the suburbs as businesses grow increasingly cost conscious.

The networking and communications specialist is expected to be the first tenant to be signed up for the business park component of the project, which is scheduled to receive Temporary Occupation Permit in a few months.

Cisco is expected to exit Capital Tower along Robinson Road, where it occupies about 80,000 sq ft; its lease runs out in Q1 2013, BT understands.

Market watchers reckon cost savings would be the main factor behind the move. They estimate that if Cisco had renewed its lease at Capital Tower, it could expect to pay a monthly rental of about $9-10 psf. On the other hand, it may pay an amount closer to the $4 psf mark at UE BizHub East, reckons an office leasing agent.

UE BizHub East is a stone's throw away from Expo MRT Station. Its nine-storey business park component will have 423,216 sq ft net lettable area in two linked blocks. Cisco is expected to lease three mid-level floors.

The project, being developed by United Engineers (UE), will also have 251 hotel rooms and serviced suites (both under UE's Park Avenue brand), about 100,000 sq ft of retail space (including a FairPrice Xtra hypermarket) and convention/exhibition and auditorium space.

Jones Lang LaSalle is understood to have brokered Cisco Systems' leasing deal but declined to comment on the transaction. However, its head of markets Chris Archibold observes: 'Given the current economic uncertainties, most occupiers are very much in cost-saving mode. In terms of their real estate requirements, this is manifesting itself as occupiers look towards cost-effective locations for their businesses.'

Market watchers say large office leasing deals in Singapore's CBD have slowed considerably in the past six months amid the weaker economic outlook. Financial institutions, which were major office leasing drivers in the CBD in 2010 and 2011, have been told by head offices to put expansion plans on hold.

'But at the same time, some of these financial institutions are looking at options for their back office functions with a view to saving costs,' says Mr Archibold. 'Over the past five years, 14 major FIs (financial institutions) here have split their front- and back-end functions, as their operations here have grown to a size that gives them the critical mass to do such a split. Another motivating factor for such a move is the lower real estate cost of locating back office functions outside the city. And rentals in such locations are also less volatile to market cycles,' he added.

'Changi Business Park has seen a lot of such activity over the past four years, with more than one million sq ft of expansion in the park by major FIs like Stanchart, DBS, Citi and Credit Suisse,' said Mr Archibold.

Last year, Credit Suisse inked a lease for 315,000 sq ft with an option to take up a further 175,000 sq ft, at One@Changi City, which will be completed by end-2012 and is next to UE BizHub East.

One@Changi City has about 650,000 sq ft net lettable area of business park space. It is part of an integrated development which also includes Changi City Point (a mall which opened in November) and a hotel.

The project is being developed by Ascendas Land and Frasers Centrepoint. 'One@Changi City has drawn interest from a variety of companies, including financial and IT companies,' said an Ascendas spokeswoman.

Source: Business Times