Singapore wants to spread itself out more evenly by blurring the boundaries between where people go to work and where they live, shop and dine. That cannot happen as long as most large offices want to crowd into the city-state’s Central Business District (CBD). A new round in this decades-long tug-of-war is about to begin with billions of US dollars of real-estate investment at stake.
In the first half of next year, the Singaporean government is to offer the biggest land parcel it has sold since 2016 for office construction. The 6.8-hectare site is near Jurong Lake in Singapore’s western hinterlands, a tranquil setting that hosts a famous bird park. This is set to be Singapore’s largest office development project outside the city center. The government might release more land in the area after judging demand and supply, but just the first site going under the hammer will potentially yield 150,000m2 of work space.
Will tenants take the bait? Earlier, when a high-speed train link between Singapore and Malaysia was planned to terminate in the district, putting up office blocks there made a lot of sense, but that transport link has fallen through.
Illustration: Louise Ting
Yet, the city-state is determined to build itself a new CBD. Even a more modest development such as The Metropolis was an act of faith in 2010, when Ho Bee Land Ltd paid S$411 million (U$302.5 million at the current exchange rate) to buy land and construct offices in a university enclave. The bet paid off. Steady rental incomes from corporate tenants such as Shell and Procter & Gamble helped Ho Bee through the early part of the COVID-19 pandemic when property sales collapsed.
With that example in mind, and knowing how keenly the government wants to decentralize, developers are unlikely to pass up on Jurong Lake, even though it is almost a 30-minute taxi ride from the city center, and one hour by train from the airport and eastern suburbs. (That is a long commute in Singapore, which is only about 48km east to west.)
The government wants one master developer. So builders will likely create a joint venture resourceful enough to write large checks — just the land cost might top S$2 billion, investment firm CBRE Group estimates.
The company expects the first batch of new offices to be completed by 2028.
The city-state is acting early to preserve its competitiveness. China’s COVID-19 isolation is to end sooner or later, but the growing estrangement between Beijing and the West might not. Hong Kong, the regional hub for 333 US firms a decade ago, now has only 240 of them. Rival Singapore has emerged as a more attractive choice for setting up Asian headquarters, but as more multinationals seek prestigious downtown addresses, they might push the city-state’s business costs out of whack.
In the past, pressure on Singapore’s office supply used to come from the financial industry. Digitization has allowed banks to prune their city-center presence and move support functions to the city’s periphery.
Now it is the large technology firms dominating the CBD leasing scene. The latest to join the craze is Amazon. According to media reports, the e-commerce giant has snapped up almost 35,000m2 in the IOI Central Boulevard Towers, a new Marina Bay project expected to be ready by October next year.
Marina Bay is Singapore’s version of London’s Canary Wharf.
In the 1980s, London started to repurpose its docklands. The Asian metropolis followed suit in the new millennium, when it began to develop a 360-hectare patch of reclaimed land. The Marina Bay Financial Centre and Asia Square added a few million square meters of offices to the new CBD.
Yet, the neighborhood is already looking full. The vacancy rate for Grade A office buildings is 2.4 percent, data by Savills Research & Consultancy showed, compared with 8.3 percent in Raffles Place, the previous top location.
Marina Bay office rents last quarter were S$132.4 per square meter per month, a 25 to 60 percent premium over the city-state’s other office micro-markets.
Singapore’s office market recovery has proved that work-from-home will not be the demand killer it was feared to be. Rental growth this year might be a modest 3 percent in Savills’ estimate, kept in check by the global economy — the war in Ukraine, higher global interest rates, a slowdown in China and rising cost pressures in the tech industry.
As for demand and supply, there is still potential to build more in Marina Bay, with the government planning to release a further 1.7-hectare at the edge of the CBD, next to another land parcel for which it has already invited bids.
However, the focus of new mixed-use projects might be on homes, which are facing a far bigger crunch with condominium rents up by one-third over the past year.
A cyclical shortage might have been unavoidable given the speed with which Singapore’s reopening attracted money and talent.
More problematic would be a structural deficit of condos and offices. That is why the city-state wants to decompress and make the best use of its limited land resources. It wants to nudge more well-heeled professionals to move into the business district and encourage more firms to move out — with employees living more cheaply near their new offices.
Now that the pandemic is over, most people need to show up at work at least some of the time. A long daily commute is not something the next generation of office workers will accept as inevitable, or even necessary. Whether Singapore developers can sell that idea to business tenants remains an open question.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To our readers: Because of the Lunar New Year holiday, from Saturday, Jan. 21, through Sunday, Jan. 29, the Taipei Times will have a reduced format without our regular editorials and opinion pieces. From Saturday to Tuesday it will not be delivered to subscribers, but will be available for purchase at convenience stores. Subscribers will receive the editions they missed once normal distribution resumes on Wednesday, Jan. 25. The paper returns to its usual format on Monday, Jan. 30, when our regular editorials and opinion pieces will also be resumed.