What will happen to the experimental transitional office sites?
TRANSITIONAL offices were an experimental property type minted by the authorities here about a decade ago, to quickly resolve a shortage of office space before the Global Financial Crisis.
Initially, the plan was to sell sites on 10-year leases for development into transitional office projects by the private sector. In the end, these sites were sold on 15-year leases in response to feedback that most developers/investors would prefer a longer lease duration in terms of meeting tenants' needs and recouping their investments.
The first such site, along Scotts Road, next to Newton MRT Station, was awarded at a state tender in 2007. In all, the Urban Redevelopment Authority awarded seven transitional office sites between 2007 and 2011, which have yielded about a million square feet. These include two sites in the Scotts Road/Anthony Road locale, one in Mohamed Sultan Road, two in Mountbatten Road and one in Tampines.
How time flies.
The leases for the seven sites will expire between 2022 and 2026. What will happen to these sites? Some observers expect the government to take back these sites upon their respective lease expiry. This could slightly tighten office supply and occupants may look for alternative premises, possibly in decentralised areas since all seven transitional office buildings are outside the financial districts. However, will some of the developers, who have built these transitional office projects, seek a lease extension on their sites from the state? What would be the merits of granting such an extension?
For a start, it could result in more efficient use of resources. If a transitional office building is structurally sound and can continue to serve as office premises, it would be a waste to discontinue its use. One may argue that the authorities should allow the lease extension to the incumbent developer/owner, as long as the government does not have any better, near-term redevelopment plans for the site. In such an event, however, chances are that the state may grant only a short extension of a few years at most, in exchange for a lease extension premium, as most of the seven sites are in pretty plum locations.
Given that there is quite a lot of office supply in the pipeline in decentralised locations - including Punggol Digital District, the Labrador Park area, and from a restoration and refurbishment of the St James Power Station in the Harbourfront area - these new developments could potentially cater to some of the current tenants when they vacate from the transitional office developments. It may be timely for some of these sites then to make way for more permanent development from a town-planning point of view.
The transitional office concept was quite an innovative idea to address the office shortage a decade ago, allowing low-rise office developments to be built quickly and not intended to become permanent features of the enviroment.
It could inspire creative solutions for challenges in the future arising from changing real estate consumption patterns. As lines blur between industries and services, there may be room for new flexible zonings to be made available. Above all, the price of real estate needs to be kept affordable, to maintain Singapore's business competitiveness in the race among global cities.
