Jurong Lake District: Examining the master-developer model

Mar 21, 2024


An artist's impression of the Jurong Lake District where the successful tenderer has to build at least 70,000 sq m of office space and about 600 housing units under the first phase.
ILLUSTRATION: URBAN REDEVELOPMENT AUTHORITY

THE tender for a 6.5 hectare (ha) white site at Jurong Lake District (JLD) – which was put up for sale in June last year under the Government Land Sales programme using the master-developer approach – will close next Tuesday (Mar 26).

To be completed over the next 10 to 15 years, the proposed development will kick-start JLD’s transformation with 146,000 square metres (sq m) of office space, and up to 166,000 sq m of residential space – which could yield about 1,700 units when completed. The development will also include 73,000 sq m of space for uses such as retail and food and beverage.

JLD is envisioned as Singapore’s largest business district outside the city centre.

Wong Xian Yang, Cushman & Wakefield’s (C&W) head of research for Singapore and South-east Asia, said: “Given that the JLD is a mega development with an integrated mix of uses, the master-developer approach would help the government to achieve its objectives of developing a second Central Business District (CBD) and its vision and development outcomes faster.”

Sing Tien Foo, provost’s chair professor of real estate at the National University of Singapore Business School, said that this approach allows a single developer to have free rein to plan and develop a more integrated and seamless development.

“The master developer will also have the incentive to make sure that the development will be successful as an integrated one, rather than having multiple developers to compete for different sites, which may be harder to find a common development theme and strategy, that is, it may create more overlapping uses in the development,” he said.

The JLD white site up for tender consists of three adjacent plots of land to be developed in multiple phases.


The 6.5 ha site near Jurong East MRT station was put up for sale in June last year. MAP: URBAN REDEVELOPMENT AUTHORITY

Under the first phase, the successful tenderer has to build at least 70,000 sq m of office space, 51,000 sq m (about 600 units) of homes, and 2,700 sq m for complementary uses. A developer can phase the remaining supply according to market demand.

Currently, state land is generally sold on a plot-by-plot basis.

Precedents

Potential bidders for the JLD site could take a leaf out of past master-developer-led projects.

There have been several large integrated projects launched by the government for master developers to take the lead in designing and developing them.

In 1988, the current 11.7 ha Suntec City site was launched with the objective of positioning Singapore as an international exhibition and convention hub.

When it was completed, Suntec City comprised five office towers, a retail and entertainment complex and a convention and exhibition centre with a total gross floor area (GFA) of 339,000 sq m.

The master-developer approach was also used for the 3.55 ha Marina Bay Financial Centre (MBFC) site with a total GFA of 438,000 sq m. It was launched in 2005 and developed as an extension to the existing CBD.

Developed by a consortium comprising Cheung Kong Asset Holdings, Hongkong Land and Keppel, the MBFC site was acquired for nearly S$1.91 billion or S$405 per square foot per plot ratio (psf ppr), and the commercial portion was completed in two phases.

This mega development added 43 per cent more office supply to the Grade A core CBD stock, and 6 per cent to the islandwide stock as at end-2009 based on CBRE’s data.



Although MBFC added a significant amount of stock to the CBD, it was not considered an “oversupply” as demand was also rising rapidly during that time, especially from the financial sector, which was booming over the 2006-to-2008 period, said CBRE’s head of research for Singapore and South-east Asia Tricia Song.

“The MBFC project added quality stock to the office segment, raising the overall prospects for the market. Office rents more than doubled as vacancy in the CBD core Grade A buildings plunged to below 1 per cent between Q3 2006 and Q2 2008.

“Most of the office space was pre-committed for Towers 1 and 2 before they reached the temporary occupation permit (TOP). For Tower 3, it had 70 per cent occupancy upon its TOP in 2012, and reached full occupancy the following year,” she said.

In terms of rent, C&W estimated gross effective rents for the three towers at about S$13 psf per month as at Q4 2023, rising 24 per cent from S$10.50 in Q4 2015.

JLL’s head of research and consultancy Tay Huey Ying said: “As successful mega integrated projects, Suntec City and MBFC played a crucial role in driving the development of the Marina Centre and Marina Bay districts into thriving hubs.

“They provided the initial critical mass necessary to kick-start the transformation of these areas. Hence, the impact of these two projects on property rents and values extends beyond their immediate surroundings.”

JLD’s impact

For the JLD site, Prof Sing highlighted that the option scheme used in the land bidding process has similarities to the one used in the MBFC tender.

“The master developer has an option of up to eight years to start the second phase after completion of Phase 1 development,” he said.

“In addition, the option scheme gives developers the security of land. It helps to reduce the upfront land costs, and developers need to manage the timing of the development carefully via the options. The option feature will also cap future land price appreciation.”

CBRE’s Song said that on the downside, large projects are often more complex and unpredictable circumstances could delay construction, increase overall costs and affect returns of the project.

However, with potentially no other tender being launched in the near term in the JLD area, C&W’s Wong said that the successful tenderer may get to “wield greater influence over pricing” for this project.

He added that the completed development will contribute more than 10 per cent of planned office supply in JLD.

With 70,000 sq m of office space planned under phase 1, this could translate to an estimated 640,000 square feet of office net leasable area, which would potentially complete in 2029 or later, he said.

“We are sanguine about the take-up of office space in JLD given (its) planned development into the second CBD of Singapore, and the encouraging take-up of new suburban Grade A office developments such as Paya Lebar Quarter.”

CBRE’s Song expects the number of bids to be on the low side, given the scale and risks of the JLD project.

“We expect bidders, if any, to form consortiums or joint ventures to tender for the site, with one to two bids. The top bid might be around S$1,000 psf ppr to reflect the heightened risks of undertaking this project,” she said.

This rate is much lower than the initial rate of S$1,300 psf ppr forecast by CBRE in June 2023.

She explained that sentiment has deteriorated since then, with increasing headwinds for the macroeconomy, elevated construction costs and higher-for-longer interest rates affecting cost of financing.

She also expects residential property values in the area could be further enhanced if the development on the JLD site is well executed.

The recent launch of the 368-unit J’den sold 88 per cent at an average price of S$2,451 psf on its launch weekend – the best-performing project amid a weak residential market.

She added: “This reflects confidence in the location despite knowing there could be at least 1,700 residential units within JLD coming through in the next 15 years.”

Other master-developer tenders in the pipeline include a Kampong Bugis site in Kallang. Touted as the next waterfront living precinct, the 8.29 ha plot’s launch has been held back due to delays in the completion of soil remediation works at the site.

At 410 ha, the entire JLD development will include the revamped Chinese and Japanese Gardens, and the new Science Centre. It will create 100,000 new jobs and 20,000 new homes between 2040 and 2050.

Bids for the JLD site will be evaluated under the concept and price-revenue tender approach, which requires tenderers to submit concept proposals and tender prices separately.

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