In my previous blog, I detailed how Singapore’s decentralised office market complements the CBD. While decentralised areas are attractive to occupiers, more can be done to make these locations even more enticing.

Decentralised office rents are assumed to be significantly cheaper than those in the CBD. However, over the past 10 years, the rent gap between the two areas in Singapore has narrowed substantially (-34.1%). This is partly driven by the doubling of office stock in the CBD.

Whereas in Hong Kong, a substantial number of occupiers have moved into decentralised office buildings due to the lack of new office stock and consequently soaring rents in the CBD. As there is adequate decentralised stock to support this demand, Hong Kong’s decentralised rent continues to be at a significant discount from CBD rents (-57.5% as of end-2016).

This outlines how rent serves as a function of office stock – a narrowing rent gap between the CBD and the decentralised area is likely a result of limited stock in the latter.

Figure 1: Comparison of office stock and rents
Source: JLL Research

The Singapore planning authority, Urban Redevelopment Authority, manages office supply through the Government Land Sale (GLS) programme which makes land available to the private sector via competitive bidding. It is noteworthy that while a similar number of GLS sites were sold in the CBD and decentralised areas over the past decade, the total net lettable area in the former was more than double that of the latter.

Figure 2: Net lettable area (sq ft) arising from GLSSource: URA, JLL Research

The presence of business park space has created a void in demand for decentralised office space. Consequently, would-be occupiers of space in business parks have to meet requirements such as having 60% of their functions allocated towards core industrial usage such as research and development, with 40% for office support.

We observed that some companies bypassed decentralised space and moved into business parks instead, given the lack of such decentralised space and also cheaper rents in business parks (a 39.6% discount to decentralised office rents).

Naturally, space efficiency and proximity to key business areas are of concern to large occupiers. Buildings with column-free floor plates and knock-out panels for internal staircases can attract occupiers, as these factors allow better workspace planning and more efficient layouts.

Areas earmarked for growth

Currently, Singapore has some growth districts, Woodlands (North), Jurong (West), Paya Lebar Central, and Tampines (East) which the URA has designated for development as commercial centres. Each area could serve a different group of occupiers. The northern and western areas may cater to businesses with ties to Malaysian companies. The eastern areas offer businesses convenient access to the CBD and Changi Airport.

In summary, we are taking ‘baby steps’ on our decentralised roadmap but more needs to be done. A marked increase in decentralised office supply in these earmarked growth districts could widen the rental gap and generate more cost savings, making this option made more attractive for occupiers.

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