Are Singapore’s latest property measures too much too soon?
Singapore’s new policies aimed at tempering house-price gains were the latest government effort to address a growing lack of affordability in cities worldwide.
For decades, plans in Singapore to develop a truly island-wide office market have moved more slowly than anticipated.
But there are new signs that districts outside the main business center are becoming more competitive.
Take Payar Lebar Quarter, east of the current business district towards the airport, and one of many envisaged commercial clusters. Spearheaded by Lend Lease, the mixed-use development will have retail, residential and public space as well as offices.
“Mixed-use projects in decentralised office markets here will offer a lot more to lure occupiers,” says Chris Archibold, Head of Markets at JLL Singapore. “Occupiers like mixed use developments as they offer more amenities to staff,” he says.
The Singaporean government has been pushing for decentralisation since 1991, with the objectives of “bringing work closer to home, alleviating congestion and relieving pressure on the supporting infrastructure of the CBD,” says Tay Huey Ying, head of research and consultancy at JLL Singapore.
Other jurisdictions, such as Hong Kong, have also sought the same goal. Archibold notes Swire Properties had great success there with Taikoo Place, a 6.5 million sq ft office development in Quarry Bay in the east of Hong Kong Island, which also features hotel, retail and F&B uses.
In Singapore, the pace of expansion thus far has been more limited by factors such as supply, and cost.
In recent years, development has focused on the CBD, where far more Grade A office space has been added. This include the development of close to 3 million square feet at Marina Bay Financial Centre, nearly 2 million square feet at Marina One, and the rejuvenation of older office buildings in Raffles Place.
The ratio of Grade A stock in the decentralised sub-market to the CBD tightened from 1:5 in 2007 to only 1:11 by 2017, according to JLL.
In term of cost, the difference between the CBD and outer districts just isn’t enough for some companies, which prefer the prestige of the main financial district, Archibold says. The rental gap between the two sub-markets narrowed to 40 percent in 2017 from 56 percent in 2007.
Archibold says this differential isn’t sufficient, suggesting a savings of at least 50 percent is likely needed to encourage companies to move out.
In Hong Kong, office occupiers can make a 70 percent saving on their rent by relocating to Kowloon East from the CBD. “They are also more likely to find larger floorplates and more modern space,” Archibold says.
However, lower office costs are not the only benefit that decentralisation in Singapore brings. Rents in decentralised office space tend to fluctuate over a smaller range than CBD offices. This stability is a boon for business planning.
Furthermore, while travel to Singapore’s CBD is much easier than in many rival cities, it is still relatively congested. Growing other working districts will relieve pressure on roads and public transport. Shorter journeys for office workers also mean less use of resources and less pollution.
However, part of the problem for Singapore’s decentralised office districts is that the CBD offers good value, with Grade A office rents competitive both regionally and globally.
The latest edition of JLL’s Premium Office Rent Tracker shows Singapore to be the 26th most expensive of 54 prime office locations worldwide tracked by the research (Q3 2017 data). Singapore is not just cheaper than Hong Kong, but cheaper than Tokyo, Beijing, Shanghai, Shenzhen and Seoul.
While a hindrance for decentralisation, it’s good for the city-state’s business environment.
“Office space in Singapore is cheap for the quality that occupiers get,” he says. “We are a regional and global financial centre, but offer good value.”