Embracing Office Decentralisation: Striking a Balance for Future Workspaces

Singapore, 28 February 2024 – In the evolving workspace landscape, a standout trend emerges: Decentralised stock has nearly tripled in the last 25 years, now comprising 24% of total office stock in Singapore. CBRE's latest report, The Post-Pandemic Office - Beyond the CBD and Decentralisation, delves into the factors driving the success of a large-scale decentralisation, drawing on the experiences of Paya Lebar Quarter (PLQ), as well as Hong Kong’s decentralised market. At the same time, Singapore’s central business district (CBD) office market will remain relevant and appealing to many multinational corporations (MNCs) and local firms.

Set to become Singapore's largest commercial district outside the CBD, Jurong Lake District (JLD) is poised for transformative growth. In June 2023, the government launched a 6.5-hectare site adjacent to Jurong East MRT station, designated for a master developer. Upon completion, the integrated development will feature over 1,700 residential units, 146,000 sq.m. of office space, and diverse complementary uses such as retail, hotel, or community spaces that can serve many workers and customers from the surrounding towns such as Clementi, Bukit Batok, Jurong East, Jurong West, and Tengah. Situated near more than 3,000 MNCs clustered in the International Business Park, Jurong, and Tuas Industrial Estates, as well as Tuas Port, companies in JLD can tap into the large talent pool from the many tertiary institutions and research hubs in the vicinity.

On the launch of the white site, Tricia Song, CBRE's Head of Research for Singapore and Southeast Asia, said “We think this master developer site brings exciting opportunities and options for developers and occupiers. While the site is huge and there are some minimum fixed requirements, there is flexibility via an option scheme where the developer can spread out the development across 15 years, which should minimise some development risks.”

In various industries, distinct preferences emerge. According to CBRE's October 2023 Top 10 Occupier data for Marina Bay (CBD), the Banking & Finance and Tech sectors collectively accounted for over 50% of the occupier mix. The CBD can be attractive to MNCs looking for a prime address as it offers a prestigious and central location, and this tends to be prevalent in industries with more intense competition for talent. Conversely, in the Western Suburbs (Decentralised), the Government and Construction sectors jointly constituted a third of the occupier mix, with consumer/industrial occupying another third. Decentralised areas offer cost-effective alternatives and appeal to end-users who prefer the convenience and lifestyle offered in suburban areas.

The report sheds light on two case studies, Paya Lebar and Hong Kong, showcasing the outcomes of decentralisation strategies. The Paya Lebar precinct in Singapore has undergone significant growth and emerged as a prominent decentralised office location since 2018, following the completion of Paya Lebar Quarter (PLQ). Today, PLQ has nearly full occupancies and achievable average rents have risen by about 20% from $7 psf/month in 2018. In the case of Hong Kong, rents achieved in decentralised areas are up to 75% lower than those in Central, far greater than the less substantial 20-30% differential for Singapore. As a result, Hong Kong's wide rent differential, among other reasons, has attracted many MNCs to decentralised areas, with recent examples being Ernst & Young, Baker McKenzie, and Julius Baer.

CBRE's 2022 Singapore Live-Work-Shop survey revealed companies’ continued preference for CBD locations, aligning with global trends emphasizing central office locations for talent retention and recruitment. A singular focus on decentralisation could lead to a disconnect from corporates’ preference to be in prime and core locations. Limited future supply in Core CBD brought about by the lack of government land sale sites, coupled with impacts of the CBD Incentive scheme - which grants bonus gross floor area to property owners if the ageing buildings are redeveloped into mixed-use developments with residential or hotel components - pose challenges.

David McKellar, Co-head of Office Services and Occupier Services, added, "Over the longer term, the office market could be moving in the direction of a severe supply crunch by 2030 if there continues to be a lack of meaningful new supply in the CBD. A decentralisation strategy should ideally be supplemented by an injection of supply in the CBD to sustain Singapore's commercial competitiveness and provide diverse choices for future occupiers”.

In conclusion, amidst attractive decentralisation initiatives, offices in the CBD continue to be the most sought-after due to its centralised location and extensive access infrastructure. As decentralisation gains momentum, CBRE advocates a holistic and balanced approach to preserve Singapore’s continued success as a key business hub by ensuring that the CBD remains reachable and relevant to meet the needs of occupiers. Striking a balance between decentralisation and maintaining the vitality of the CBD is crucial for shaping the future of work.

To read the full report, click here.