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Singapore’s push for decentralisation hindered by lack of quality office space outside of CBD

Rental savings of 34 per cent do not compel businesses to relocate

​SINGAPORE, 31 May 2017 – A dearth of good quality decentralised office space, ample new supply in the CBD, and the narrow rental gap between good quality office spaces in these two markets is hampering Singapore’s decentralisation efforts.

A new research paper by JLL found that although the concept of office decentralisation was first mooted in the 1991 Concept Plan, the stock of prime decentralised office space was just 10 per cent of the total stock of prime CBD office space at the end of 2016.

In fact, the stock of Grade A office space in the decentralised sub-market has remained stagnant at 2 million sq ft since 2007, while that in the CBD doubled over the same time. This can partially be attributed to the lower level of state land supply released for office development in decentralised areas compared to that in the CBD in the last 10  years.

Ms Tay Huey Ying, Head of Research and Consultancy for JLL Singapore, explains, “New CBD Grade A office supply that came on stream between 2007 and 2016 arising from public land sales initiative, such as the Government Land Sales Programme, almost quadrupled that in the decentralised region. The continual rejuvenation of some older CBD stock, such as Ocean Financial Centre and OUE Bayfront, further boosted Grade A office supply in the CBD.”

As the ratio of Grade A stock in the decentralised sub-market to the CBD tightened from 1:5 in 2007 to only 1:10 by 2016, the rental gap between the two sub-markets narrowed from 56 per cent in 2007 to 34 per cent in 2016.

Mr Chris Archibold, Head of Markets for JLL Singapore, says: “Today’s rental gap of 34 per cent between Grade A office space in the CBD and the decentralised sub-market provides little incentive for occupiers to forgo the convenience and prestige of a CBD location for decentralised space.”

He adds, “Even if occupiers are prepared to look past the lack of cost-savings, there is hardly any good quality decentralised office space available for lease, given that the vacancy rate in that market was tight at 1.6 per cent, at the end of 2016. That said, well-located mixed-use developments are continuing to draw tenants who are looking at the working environment and wellbeing of their staff.”

Hong Kong comparison

JLL found that the situation in Hong Kong is starkly different. There, the amount of prime decentralised office stock has grown by about 38 per cent between 2007 and 2016 while the total of prime CBD stock has remained largely stagnant. The lack of new Grade A office stock in Hong Kong’s CBD, coupled with the influx of Chinese firms during the 2013 to 2016 period, drove prime CBD rents skywards. This has led to prime rents in decentralised locations trading at up to 67% discount against the CBD, as at end-2016. The lack of new CBD prime office stock, high CBD rents and the availability of good quality decentralised office space has resulted in a substantial number of occupiers moving out of the CBD into decentralised office buildings.

For decentralisation to reach its full potential, Ms Tay recommends, “Singapore needs to boost its supply of decentralised office space but curb growth in the CBD. Driving the rental gap above 60 per cent will motivate businesses to relocate. The adoption of the mixed-use development format - combining office and retail for example – and ensuring that such developments are located close to transportation nodes would further ensure a winning formula. At the end of the day, the availability of a diverse range of office space and locations at varying price points would be a magnet drawing more businesses to set up in Singapore.”

Download the report Office Decentralisation – A Reality Check for Singapore here.