Incentivising change: spotlight on Singapore's CBD and Orchard

Singapore’s ageing City Centre and Orchard shopping belt are undergoing rapid and exciting transformations with an unprecedented surge in redevelopment activities since 2020.

Infusing life into the heart of Singapore’s business district

The bulk of the stock renewal involves office assets. An estimated 4.6 million sq ft of office space islandwide is projected to be withdrawn for redevelopment between 2020 and 2027.

Nearly 60% or 2.7 million sq ft is in the CBD, of which almost half will be tapping into the Urban Redevelopment Authority (URA)’s CBD Incentive (CBDI) Scheme introduced in 2019 as part of Singapore’s Master Plan 2019 to encourage rejuvenation of the CBD.

Figure 1: Estimated breakdown of potential office withdrawals from 2020 to 2027 due to redevelopment/refurbishment works

Source: JLL Research

The CBDI Scheme offers bonus plot ratios of 25-30% to qualifying office sites in the CBD transitioning into hotels or mixed-use developments. Owners of office buildings such as Fuji Xerox Towers, AXA Tower, and Shenton House are tapping into the CBDI to redevelop their ageing assets into developments with diverse uses.

The competition to provide newer and greener offices to stay relevant has also spurred landlords to pursue redevelopment strategies for their assets including non-qualifying buildings like Shaw Tower and Clifford Centre, which are located outside the designated boundaries of the CBDI Scheme.

These CBD redevelopment projects are expected to yield over 660 residential units and approximately 1,270 hotel rooms or serviced apartment units, in addition to returning slightly over 3 million sq ft of brand new and ESG-focused office spaces.

Orchard's redevelopment drive pushes the boundaries of land prices

Outside the CBD, particularly in Orchard, the Strategic Development Incentive (SDI) Scheme acted as a catalyst for owners to reassess strategies for their ageing assets.

Under this scheme, owners of qualifying developments are offered various incentives. This includes an increase in plot ratio when they collaborate with at least one neighbouring property (exceptions will be evaluated on a case-by-case basis) to transform their assets into new, bold and innovative developments that will positively transform the surrounding urban environment and help rejuvenate the area.

This scheme triggered redevelopment in Orchard Road. Hotel Properties Limited has obtained the URA’s provisional permission to redevelop Forum The Shopping Mall, voco Orchard Singapore and HPL House into a new mixed-use development. The owner of Faber House has also taken the redevelopment route.

The redevelopment drive has sparked a collective sales wave and set new benchmark land prices in the Orchard submarket. In December 2022, Ming Arcade was sold to Royal Group for an unprecedented land price of SGD 3,125 per sq ft per plot ratio (psf ppr). This broke the previous record set in February 2022 when Tanglin Shopping Centre was sold for SGD 2,769 psf ppr. More recently, in September 2023, Bright Ruby Resources made an offer to acquire Far East Shopping Centre for an even higher unit land price of over SGD 3,350 psf ppr, subject to approval for redevelopment under the SDI Scheme. Unfortunately, the deal was reportedly aborted as the buyer failed to secure URA approval.

JLL’s research¹ shows that the city-state will experience a 56% deficit in ESG-focused office stock by 2030, a timeline many corporates have set for meeting their intermediate sustainability goals. Considering the effectiveness of the CBDI and SDI schemes in encouraging stock renewal thereby boosting the stock of green offices in land-scarce Singapore, there is scope for the URA to extend these schemes beyond their initial five-year tenure, which is due to end in November 2024.

Figure 2: Examples of redevelopment projects in the pipeline