Here's how developers can benefit from office decentralisation in Singapore

6 sub-regional centres outside the CBD are already attracting tenants.

According to UOB Kay Hian, the government has increased the supply of office space outside the CBD in its efforts to locate jobs near population centres and to spur the development of sub-regional centres.

Here's more:

These include: a) Jurong Lake District - the largest commercial and regional centre outside the city centre, b) One-North - hot spot for the biomedical sciences, infocomm technology, media, physical sciences and engineering sectors;

c) Paya Lebar Central - good location for businesses that prefer to be located on the fringe of the city, d) North Coast Innovation Corridor (Woodlands, Sembawang, Seletar) - innovative economic corridor buzzing with ideas, creative designs and new technologies;

e) Southern Waterfront City (extending from Marina Bay along the water from Keppel Channel, and f) Changi Business Park, Tampines Regional Centre and industries at Lorong Halus will be expanded.

Impact of decentralisation to fall on older offices. Although higher islandwide office supply will curb rental upside, we believe that the impact of the new supply will fall more on Grade-B and older offices as tenants shift to take advantage of more efficient floor plates and newer office amenities.

For example, Shell and Procter and Gamble, which both signed new leases at The Metropolis in 1Q13, have occupied their current offices in the periphery of the CBD for over 10 years. 

Although the government has released office land supply in the Jurong Lake District and also along Paya Lebar Central, the new sites incorporate retail and office commercial components, and may even incorporate hospitality or residential components to provide integrated mixed-use developments where communities can live, work and play.

Development plans are also spread out over a number of years to avoid an oversupply situation. For example, the government’s plans for the development of the Jurong Lake District may take 10-15 years to be fully realised.  

Two-thirds of Singaporeans will be in white-collar jobs by 2030, up from about half currently, according to the projections by the Population White Paper released by the government.

Over the longer term, the increasing number of white-collar jobs will support additional demand for office space, especially in the suburbs and the new Downtown.

The decentralisation of office space presents new opportunities for office REITs to diversify their portfolios. Suburban office developments, such as Westgate, Jem or The Metropolis, which are able to attract large MNC tenants or even government departments, could prove to be stable yield-generating assets, especially if leases are committed for the longer term.

Cap rates for decentralised offices will be higher, due to their location away from the CBD, although demand could still be supported if the properties are located near major commercial and transport nodes.