A struggling business park deals a blow to the ambitions of Singapore’s regional hub

By Low By Wei

(Bloomberg) — Singapore’s commercial real estate market has been outstanding amid a global recession, with one major exception.

Just nine miles from the gleaming skyscrapers crowding the country’s Central Business District is a 71-hectare (175-acre), billion-dollar example of the city-state’s efforts to create alternative business centers. Changi Business Park, dubbed the “CBD of the East” has been a big draw for tech giants including International Business Machines Corp. and Advanced Micro Devices Inc. Global banks from JPMorgan Chase & Co. at Citigroup Inc. they also located their back-end staff there.

The business park is now rapidly emptying, dealing a blow to Singapore’s government’s meticulous urban planning and efforts to get foreign companies to expand regional operations in the Southeast Asian island nation. Total vacancy rates in 10 commercial properties there, tracked by real estate consultancy Cushman & Wakefield, have more than doubled over the past three years to nearly 40 percent.

The development’s woes show how global layoffs in technology and finance, along with the force to work from home since the pandemic, are overwhelming even a project with strong government backing in one of the world’s most desirable financial centers. Changi’s struggles contrast with Singapore’s busy downtown, where office rents rose to a 15-year high earlier this year and buildings are nearly full.

IBM, which occupied two namesake buildings totaling 12 floors in Changi, has reduced its presence to two floors, according to people familiar with the situation, who asked not to be identified discussing private matters. UBS Group AG reduced the more than 10,220 square meters (10,220 square meters) of space it occupied by more than half. Standard Chartered Plc, which owns two buildings in the park, has sought to lease two floors with at least 58,000 square feet of office space, according to a property listing.

During a recent visit to Changi, several buildings had “For Lease” signs plastered outside their modern glass facades, including the space formerly occupied by IBM, which is owned by government agency JTC Corp. Hansapoint, a seven-storey development with landscaped gardens and a gym, was only 36.5% occupied at the end of 2023 following the UBS cut. It was almost full before. The Swiss bank declined to comment.

Hansapoint is owned by CapitaLand Ascendas REIT, one of Singapore’s largest commercial landlords. The real estate investment trust’s total occupancy of more than 2.3 million square feet of leased space at the park fell to about 76 percent at the end of 2023, from nearly 94 percent four years earlier. Some of its underperforming business park units in Changi and elsewhere are being offered at a “3-for-2” rate – meaning tenants can get a year’s rent free if they sign a new lease of three years, according to familiar people. with the issue and an online promotion campaign.

A spokesman for the REIT said it is in discussions with prospects for Changi Business Park and is using a range of incentives to engage with potential customers and existing tenants. Total occupancy of the company’s business space and life sciences portfolio exceeds the industry average in the country, the spokesperson said.

Singapore remains a key global hub for Standard Chartered, where more than 80 percent of its staff here have adopted flexible working arrangements, a spokesman for the British lender said. The bank maintains a significant presence at Changi Business Park and the Marina Bay financial center in the city centre, he said. IBM, which retains three floors at MBFC, said it remains committed to its local operations and its “optimization” of space at Changi in recent years has been shaped in part by its hybrid working model and spin-off- of its managed infrastructure services business. .

“Changalore”

While the challenges facing business park owners in Singapore mirror those in other parts of the world, there are also some unique local issues that make property marketing a difficult endeavor.

Conceptualized in the early 1990s, the Changi Business Park is part of a decades-long decentralization of the authorities, which includes plans to develop a new CBD in the west of the island. The park is located between Changi Airport – one of the busiest airfields in the world – and the country’s largest exhibition venue.

But for Singaporean workers who prefer to be in the central district, the business park is still a prohibitively remote location. A bank employee who asked not to be named said she spends at least 90 minutes commuting each way on public transport, which costs around $2. A taxi or ride-hailing service would take less than half the time but can cost as much as $45 during peak hours, she added.

To make commuting easier, companies such as Standard Chartered have arranged shuttle buses to transport staff from their city center locations or MRT stations to Changi. Singapore is building a new underground subway line to reduce travel times from one end of the island to the other, but it is several years away from completion.

Changi Business Park has also become a lightning rod for citizens’ anxieties about the city-state attracting foreign labor to meet business needs. The predominance of technical operations there has led to what one minister once said was a “concentration” of expatriate Indian workers, with some locals calling the area “Chennai Business Park” or “Changalore”.

Singaporean authorities have tightened immigration policies in recent years, such as raising minimum wage thresholds for work visa holders. This has increased employment costs for companies, prompting them to consider locating back-end regional staff in cheaper countries such as neighboring Malaysia. Some banks are using the threat of moving there as a negotiating tactic to get landlords to lower their rents on the business premises, according to a person familiar with the lease renewal discussions. Elsewhere, new supply will further challenge the market. Punggol Digital District, a 50-hectare business park developed by JTC in northeastern Singapore, will begin opening in phases from the end of this year. One person involved in the marketing of Changi’s properties described the effect of the new space as killing an already dying patient.

JTC said the Punggol project is an example of its efforts to keep business parks attractive. “While there appears to be an increase in vacancies in older real estate, we do not see this as a reflection of inherent weakness in any specific sector,” the agency said.

Sour investors

Total job vacancies in Singapore’s business parks rose to about 22 percent in the first quarter, the highest level in more than a decade, according to government data compiled by property consultancy Colliers International Group Inc. Google parent Alphabet Inc. has given up about 60,000 square feet of space at Mapletree Business City, a business park on the edge of downtown. A Google spokesperson said the firm is working to ensure its real estate investments meet the current and future needs of the hybrid workforce.

Investor confidence has been hit. Since last year, another REIT, Mapletree Industrial Trust, has sought to sell three of its S$533 million ($396 million) Singapore business park assets, including a nine-storey building called The Signature in Changi, people familiar with the matter said. . A spokesman for the REIT, which is backed by state investor Temasek Holdings Pte, declined to comment.

Local developer Frasers Property Ltd. recently closed a deal to sell a hotel and serviced apartment complex in the heart of the park, which managing director Panote Sirivadhanabhakdi attributed in part to the “structural challenges” now facing industrial and business parks.

Changi has certainly seen some success recently. Julius Baer Group Ltd. said in April that it moved nearly 700 employees from Mapletree Business City to a larger space of more than 75,000 square feet in the business park. The Swiss wealth management firm also has an office in Singapore’s Marina Bay area.

The search for tenants continues for the remaining vacant areas. The once busy floors of the IBM building fell silent. One floor displays a dusty sign asking staff to move out by the end of 2022, while another still has cubicles and furniture but no people.

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