The take-up of two government schemes that incentivise the redevelopment of ageing buildings in certain areas has picked up, and will inject buzz in those precincts as new mixed-use developments emerge, analysts said.
As at Apr 5, the Urban Redevelopment Authority (URA) has received 12 outline applications under the CBD Incentive Scheme (CBDI), of which 8 have been given in-principle approval. Meanwhile, URA has received and given in-principle approval for 4 outline applications under the Strategic Development Incentive (SDI) Scheme. The names of the buildings have not been disclosed due to confidentiality reasons.
According to consultants The Business Times spoke to, buildings that have received in-principle approval under the CBDI include 80 Anson Road (formerly Fuji Xerox Towers), 8 Shenton Way (formerly AXA Tower), Realty Centre, ABI Plaza, 78 Shenton Way and Maxwell House. Tower Fifteen is also seen as a likely candidate.
In response to a query from BT, CapitaLand said ABI Plaza is "eligible for the CBD Incentive Scheme."
Meanwhile, buildings with in-principle approval under the SDI include Central Mall and Central Square, and Faber House.
The redevelopment of some older buildings has been a plus for the Grade A CBD market during the pandemic, supporting rents as some office stock was taken off the market.
"The removal of (Fuji Xerox Towers and AXA Tower) from effective supply are in part the reason why office rents in the Grade A CBD market have been able to defend against the work-from-home practice and the economic slowdown that afflicted businesses," Savills executive director (research) Alan Cheong pointed out. He estimates that Fuji Xerox Towers and AXA Tower cover 345,000 sq ft and 672,000 sq ft of net lettable area (NLA) respectively.
While the take-up of the schemes were modest in the first year, it "has gathered momentum", said CBRE's head of research (South-east Asia), Tricia Song, citing the recovery in the residential market and softer office rents during the pandemic as factors. The schemes were announced back in March 2019.
JLL head of research & consultancy Tay Huey Ying, said: "In the immediate term, the acceleration of the redevelopment of CBD ageing office assets at a time when office demand is recovering alongside economies’ return to growth will accentuate the tight supply condition and contribute to upward pressure on rents." JLL estimates that the growth of CBD Grade A office rents could more than double this year from the 4.3 per cent clip in 2021.
Tay highlighted that the redevelopment of older office assets into mixed-use projects would help "stabilise CBD office inventory", giving the government more scope to speed up its decentralisation strategy. This includes Jurong Lake District, which is slated to become the biggest business district outside the CBD.
Cushman & Wakefield head of research, Wong Xian Yang, reckons that over the long-term, the take-up of the CBDI will reduce available office stock and introduce more homes or hotel rooms via new mixed-use developments, which will rejuvenate the designated areas.
Redeveloping these assets would introduce more live-in residents in the CBD, turning the area into bustling neighbourhoods that would boost footfall on weeknights and weekends, Wong added. As a result, the retail mix in the CBD could grow more vibrant, evolving from largely F&B today.
"This could spark a virtuous cycle of development in the CBD," Wong added. "A more vibrant retail mix would increase the attractiveness and convenience of CBD living, which would support private residential demand and prices in the CBD." And barring a large increase in fresh office supply from greenfield sites in the CBD, existing offices in the area would grow more scarce and valuable, he pointed out.
Song shared the sentiment, saying: "(Redeveloped assets) would transform the CBD from a mono-use office-centric district, to a vibrant mixed-use neighbourhood which will be buzzing 24/7 It will also reduce commuting time in and out of the CBD, thus reducing carbon footprint, as well as enhance the use on prime land round the clock. "
Meanwhile, Cheong expects that other older buildings in the CBD will also go take the redevelopment route, or at least implement asset enhancement initiatives. "If not, a tired building will find itself out of the running in chasing after potential, or retaining existing, tenants."
Still, Cheong flagged that whether more candidates adopt the scheme will ultimately depend on the government's residential policies. He reckons that a "meaningful reduction" in the Additional Buyer's Stamp Duty rates would be needed to encourage developers to take up the schemes in their current form, since foreigners are likely to be buyers of private homes in those areas, given the ultimate selling price.
He added: "Development charge rates also have to be calibrated to encourage owners of buildings in the CBD endowed with less of a vantage to be incentivised to redevelop."
Credit: Business Times