The mega site tender for Jurong Lake District was not awarded because the S$640 per s

The mega site tender for Jurong Lake District was not awarded because the S$640 per square foot bid was deemed "too low."

For the large mixed plot, a group including CapitaLand, CDL, Frasers Property, Mitsubishi Estate, and Mitsui Fudosan (Asia) had submitted two bids.

September 13, 2024

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There has been a setback to the government's ambitious plan to develop Jurong East into Singapore's second Central Business District. The Urban Redevelopment Authority (URA) announced on Friday, September 13, that a five-member consortium's bid for a mega white site that would serve as the catalyst for the development of the future Jurong Lake District (JLD) had been rejected as "too low," and the tender would not be awarded.

One bidder submitted two concept proposals for the 6.5-hectare site, and the tender ended on March 26. CapitaLand Development, City Developments Ltd (CDL), Frasers Property, Mitsubishi Estate, and Mitsui Fudosan (Asia) were the five main participants in the heavyweight consortium.

A minimum of 1.5 million square feet (sq ft) of office space, up to 1,700 residential units, and nearly 800,000 sq ft of space for other uses like retail and food and beverage were all part of the master developer project, which included three plots of land that would be developed over a period of 10 to 15 years.

The URA stated that one of the concept proposals was shortlisted after the other two were evaluated. The shortlisted concept's offered price of S$6,888.90 per square metre (sq m) of gross floor area (GFA) was deemed too low, so the tender has not been awarded. This amounts to approximately S$640 per square foot per plot ratio (psf ppr), meaning that the land would cost roughly S$2.5 billion.

Significant risk

Nearly six months after the tender closed, URA made its announcement. Analysts had made bids between S$900 and S$1,000 per square foot at the close of the tender. Subsequently, market rumours circulated that the low bids were indicative of the significant risk developers would be assuming in an unproven major commercial district. However, industry participants had anticipated that the tender would be awarded in order to initiate the JLD's development.

"The master developer site tender at (JLD) marked the first strategic partnership among five of Asia's leading developers," a consortium spokesperson said in a statement released Friday evening.

"Even though our consortium may not currently have the chance to realise our vision for the site, the process of creating our concept proposals for JLD's transformation has given us invaluable insights and lessons. We value the cooperation and commitment of all parties involved and eagerly await more chances for collaboration.

The two Japanese firms each owned 12.5% of the joint venture bidder, while CapitaLand, CDL, and Frasers Property each had a 25% stake.

According to the URA's statement, the government is dedicated to making JLD a sustainable development model that integrates commercial, residential, and recreational areas outside of the city centre. According to the statement, the agency will "review the approach for the master developer site" and keep asking industry stakeholders for input on JLD.

The JLD site will be added to the state's reserve list, where it will be available for bidding, provided the government approves a minimum price.

The results of the tender demonstrated that the government's expectations for the JLD vision and developers' faith in the Jurong area were "not aligned, especially in such a tough environment," according to Desmond Sim, CEO of Edmund Tie & Co.

In the future, he proposed, smaller plots might be set aside for sale.

"JLD is a feasible endeavour. However, for the time being, the timing is not right," stated Alan Cheong, executive director of research and consulting at Savills Singapore.

The risk would justify a conservative bid price if the goal is to develop it in the allotted time. However, the risk of a low bid might be justified in order to launch this enormous project," Cheong continued.

"We understand that URA had deliberated on this for a long time and after considering many factors, including the soft office market, relatively volatile interest-rate expectations between March and now, construction cost uncertainties, and developers’ low risk appetites," stated Tricia Song, research head for South-east Asia at CBRE. At this point, it may not be the best idea to push through the decentralised vision regardless of land pricing.

The consortium's bid for the JLD tender was less than the cost of two other white sites that were previously sold in Jurong East, according to Wong Siew Ying, head of research and content at PropNex.

A Jurong Gateway Road site that was turned into Jem was awarded for almost S$650 psf ppr in June 2010, and a Boon Lay Way plot that is now Westgate mall was awarded for S$1,012 psf ppr in May 2011.

The right price tag

Mark Yip, the CEO of Huttons Asia, thought the S$640 per square foot price tag was reasonable given the state of the market. According to him, developers must deal with a "long gestation period to (recoup) the huge outlay" in addition to high costs and significant uncertainties when developing the site.

Since the pandemic, demand in the office market has not improved, he continued, and it is uncertain whether there will be enough demand for the site's enormous office space over the ensuing ten years. "Progress on that front may help accelerate JLD's development if the proposed Kuala Lumpur-Singapore high-speed rail project restarts," he said.

Additionally, this is the second state land site this year that has not been awarded, according to PropNex's Wong. For a Marina Gardens Crescent white site in February, the only bid of almost S$770.5 million, or S$984 psf ppr, was turned down because it was deemed "too low," according to URA.

According to Song of CBRE, the postponement of the opening of new office space in Jurong would provide "medium-term relief to the islandwide office supply, as approximately 0.7 million sq ft of potential JLD Phase 1 office stock will be pushed back beyond 2030." However, because the government is still committed to JLD, the pressure is "unlikely to go away totally."

Outside of the city centre, the largest business district

The white site that was put up for sale is the first of its kind in the JLD, which will be the biggest business district outside of the city centre of Singapore, and it spans an enormous 6.5 hectares.

It consists of three land plots that will be developed up to a maximum GFA of 365,000 sq m between the Jurong East MRT interchange station and the future Jurong Lake District MRT station.

Bidders sent separate envelopes containing their concept proposals and tender prices in the dual-envelope tender. The second step, which is determined by price, is only reached by concept proposals that make the short list. According to URA, this was done to make sure the chosen proposal matched the JLD's vision.

A single developer would be free to create the master plan, phase it out, and complete the entire development—including public spaces, district infrastructure, and connectivity—under the master developer approach.

The successful bidder would have to construct at least 753,473 square feet of office space and roughly 549,000 square feet of residential space in the first phase of the development.

However, based on market demand, the developer would have the option to phase out the remaining supply.