Redevelopment a toss-up between city retail and CBD offices

CBD and Orchard Belt have seen numerous redevelopment projects propelled by URA incentives.

Singapore's incentive programme for redevelopment projects has put a spotlight on office and retail properties, particularly in the Central Business District and Orchard shopping belt. For those planning to leverage these incentives, Singapore Business Review compiled expert opinions to help evaluate which area and type of asset presents better investment opportunities.

Jeremy Lake, managing director of Investment Sales and Capital Markets at Savills, said retail shopping centres offer higher rental yields than office buildings.

“Property yield which an investor can enjoy [for office buildings] on day one is around three and a half per cent, whilst retail shopping centres is maybe near four-and-a-half per cent,” Lake told Singapore Business Review.

Whilst retail offers a higher rental yield, Lake underscored that there are not very many opportunities within the sector as assets are “quite tightly held.” In comparison, the office market has a “few deals around.”

Retail assets are also harder to manage as they require a “skill set in terms of curating the right tenant mix,” said Lake. “Office buildings are more straightforward.

Retail opportunities

Despite the need for more asset management , investors continue to find retail shopping centres appealing.

The Orchard shopping belt, for one, has seen quite a number of activities including the sale of Delfi Orchard to City Developments Land; Tanglin Shopping Centre to Pacific Eagle Real Estate; and Ming Arcade to Royal Group of Companies.

These properties are all ripe  for redevelopment, which means that their buyers  did not buy for “immediate rental returns.” The opposite is the case for suburban retail assets.

“The suburban mall retail opportunities that we have seen transacted over the last couple of years are existing shopping malls. The owners or purchasers will retain them and operate them as they are for the foreseeable future. They’re buying for the income,” Lake said, adding that the income return for such properties could be in the four-and-a-half percent range.

“The suburban malls people are buying for the existing building and the cash flow; whereas the deals we’ve seen along Orchard have been  for redevelopment ," Lake shared.

Orchard sub-precincts

Many opportunities thrive within the sub-precincts of the Orchard shopping belt, encompassing Orchard, Somerset, Dhoby Ghaut, and Tanglin.

Charmaine Koh, senior analyst of Research and Consultancy at JLL Singapore, said redevelopment initiatives in Somerset, Dhoby Ghaut, and Tanglin, and the presence of luxury brands and flagship stores in Orchard, render these sub-precincts prime investment hotspots.

Apart from housing more luxury and flagship stores, the Somerset and Orchard sub-precinct also boasts activity-based attractions.

Trifecta, an action sports facility situated between Somerset Skate Park and Killiney Road, opened its doors in October, 2023. In the heart of Orchard Road, Lendlease Global Commercial REIT will launch a 3,000-person indoor multifunctional event space, hosting concerts, events, and innovative food concepts.

On the other hand, the Dhoby Ghaut sub-precinct is poised to attract families with its transformation, integrating green spaces into its revitalisation efforts. Dhoby Ghaut will see an integration of a 500-metre “pedestrianized” stretch between Buyong and Handy Roads along Orchard Road.

Meanwhile, the Tanglin sub-precinct will also see a wave of redevelopments which will offer retail opportunities, including Ming Arcade, Tanglin Shopping Centre, Forum The Shopping Mall, Voco Orchard Singapore, and HPL House.

Michelle Tee, director of JLL Research & Consultancy based in Singapore, believes the Strategic Development Incentive (SDI) Scheme of the Urban Redevelopment Authority (URA) propelled these sales.

Tee said the scheme offers incentives such as “an increase in plot ratio when they collaborate with at least one neighbouring property to transform their assets into new, bold and innovative developments that will positively transform the surrounding urban environment and help rejuvenate the area.”

Business district

In the Central Business District, Tee said URA’s CBD Incentive (CBDI) Scheme is encouraging rejuvenation.

“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,” Tee said.

“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,” Tee said.

CBD redevelopment projects are anticipated to deliver over 660 residential units and around 1,270 hotel or serviced apartment units, alongside over 3 million square feet of new, ESG-focused office spaces.