Contrary to the expectations of some market observers, the redevelopment of aging office buildings in the Central Business District (CBD) will not necessarily lead to a reduction in office space in the area in the medium to long term.
This is reflected in the details of the provisional permissions granted by the Urban Redevelopment Authority (URA) in the third quarter for the redevelopment projects of AXA Tower on Shenton Way and PIL Building on Cecil Street.
The new project for AXA Tower has received provisional approval from the URA, and in terms of net lettable area, it will generate the same or even more office space than currently exists. Meanwhile, the proposed redevelopment of PIL Building will significantly increase the office space on its site.
A joint venture, comprising a consortium led by Alibaba Singapore and Perennial Holdings, has received provisional permission from the URA to redevelop the AXA Tower site into a mixed-use project. The project’s functions are specifically divided into three parts: 847,808 square feet of gross floor area for offices, 86,187 square feet for retail space, and the remaining gross floor area will be used to build 268 apartments and 100 hotel rooms.
Based on estimates from The Business Times: assuming a building efficiency ratio (net lettable area to gross floor area) of 80% to 85%, the office space could translate to approximately 678,000 to 720,000 square feet of net lettable area. This figure is close to or even slightly higher than the existing 680,000 square feet of office space at AXA Tower.
AXA Tower is located on a site opposite Tanjong Pagar MRT station, with a total land area of about 118,200 square feet and a remaining lease of 60 years. It is understood that its owners have applied to the Singapore Land Authority (SLA) to extend the site’s lease to 99 years.
Last year, Alibaba Singapore, a subsidiary of Alibaba Group Holding, acquired an indirect 50% stake in AXA Tower, a deal that valued the building at S$1.68 billion. Alibaba Singapore will redevelop AXA Tower jointly with members of the Perennial-led consortium, which will continue to own the remaining half of the property.
Analysts expect that Alibaba will eventually manage and occupy a significant portion of the office space in this new mixed-use development for the long term. Alibaba’s businesses, including Lazada, have long used AXA Tower as their office location, but they will temporarily relocate to Lazada One at 51 Bras Basah Road during the redevelopment.
Also receiving provisional permission from the URA in the third quarter was TE Capital Partners, which formed a consortium to purchase the 17-storey PIL Building for just over S$330 million. At the same time, it has been approved to redevelop PIL Building into 212,888 square feet of gross floor area for offices and 7,707 square feet for retail space.
According to The Business Times’ estimates: in the future, the net lettable area for the office component of PIL Building will be approximately 170,000 to 181,000 square feet, a significant increase from the existing 107,000 square feet. The building will subsequently be acquired and jointly managed by a joint venture between TE Capital Partners (a real estate investment management firm founded by siblings Terence and Emilia Teo, children of Tong Eng Group’s Managing Director Teo Tong Lim) and LaSalle Investment Management.
Under the URA’s Master Plan 2019, the PIL Building site is zoned for commercial use with a plot ratio of 11.2. The property consists of three land parcels with a total area of 1,812 square metres (19,504 square feet). The largest parcel of nearly 1,392 square metres is freehold. It is flanked by two smaller plots of about 142 square metres and 278 square metres, which have 99-year leasehold tenures starting from May 1977.
It is understood that the leases for these two plots have been approved in principle to be upgraded to freehold status.
In the second quarter of this year, the URA granted provisional permission to City Developments Limited (CDL) to redevelop the Fuji Xerox Towers site at 80 Anson Road into a mixed-use project. This will include 251,272 square feet of office space, 10,764 square feet of retail space, and 484 apartments (including apartments for sale and serviced apartments).
In terms of net lettable area, the office component could reach 201,000 to 214,000 square feet. This is a significant decrease compared to the former Fuji Xerox Towers’ 342,000 square feet of office space. Nevertheless, CDL’s redevelopment plan is being carried out under the URA’s CBD Incentive Scheme.
Lam Chern Woon, Head of Research and Consulting at Edmund Tie, noted that the redevelopment of old office buildings in the CBD will cause displaced tenants to seek alternative spaces in the short term, thereby supporting leasing activity in other areas.
“We believe the supply pressure from redevelopment is limited, as the net lettable area from the new office buildings is roughly similar to the overall space affected by the redevelopment.”
Lam added: “The government is clearly guiding the CBD away from purely office use, providing incentives for more mixed uses to create a living environment and improve the vibrancy and utility of the land. Rebuilding old office assets into mixed-use projects allows various real estate uses to complement each other, thereby enhancing the overall living, working, and social environment for users.”
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