special report - CBRE

SPECIAL REPORT Marina Bay: A Garden City by the Bay | A Global Business Hub August 2012

Special Report: Marina Bay – A Garden City by the Bay

Executive Summary • As Singapore approached the new millennium, the continued expansion of Singapore’s economy as well as its fast growing financial sector, highlighted the need for a fresh supply of quality commercial space in order for Singapore to achieve its status as a financial hub. Years of development had led to the need for urban regeneration and a need for “breathing space” for the expansion of the CBD. • Marina Bay is the new growth area slated to be the new extension of the traditional CBD. It is planned around an urban grid pattern extending from the existing city grid network with each parcel of land readily prepared to allow development flexibility in the sizes of the land parcels via further amalgamation and sub-division as well as through the removal and creation of new access and service roads. • Development flexibility is further extended to the developers when the development sites are zoned “white” by the URA. The “white” zoning offers these developers the autonomy for a variety of uses within the development as well as the ability to respond to changing market needs in the future. • Public sector investment has been pivotal to the successful development of Marina Bay. Marina Bay benefits from a slew of public sector investments in infrastructure. • Marina Bay stands out not only for its ability to attract MNC occupiers, but a sizeable number of foreign investors who have been actively involved in building up an impressive number of iconic developments along the Bay. So far, investments into the Marina Bay have come from both local developers as well as developers from Hong Kong, USA, Malaysia and Australia. • With a prime waterfront location, higher specifications and larger floor plates, buildings in Marina Bay have contributed to a rise in the overall average market rent.

Page 2 © 2012, CBRE Group, Inc.

• Of the six office towers totaling 5.5 million sf completed since 2006, the average pre-lease commitment level upon completion is 82 %. This is an extraordinary leasing performance by any global comparison especially with four out of the six towers were essentially 100% pre-let upon completion. • Unsurprisingly, occupiers from the financial sector dominate. So far, approximately 65% of the occupied space in Marina Bay buildings is taken up by financial institutions. • The Marina Bay office market may still be propelled by the impending growth of the complementary industries as these industries may still consider expanding their presence in the bay area given the right terms. • While more than S$7.5 billion has been invested by the government to date, CBRE estimates that more than S$6.2 billion has been received by URA from the sale of land parcels (this excludes proceeds from One Marina Boulevard and the M+S Marina One development site.) • There has also been more than S$25 billion worth of local and foreign equity pumped into the developments. Notwithstanding the indirect contributions to the state’s GDP and employment creation, Marina Bay looks to be one of the most lucrative investments ever. • We wait with much anticipation the next phase of development of Marina Bay - will Marina Bay deliver its full potential to transform Singapore into a world winning city?

In July 2012, Singapore played host for the World Cities Summit. This biennale global summit was on its third run and has brought together world leaders and leading experts to confer on public governance and the sustainable development of cities. The summit also saw the award of the Lee Kuan Yew World City Prize to the Mayor of New York City, Michael Bloomberg and the Departments of Transportation, City Planning and Parks and Recreation, New York. The Lee Kuan Yew World City Prize is a biennial international award that honours outstanding contributions towards the creation of vibrant, liveable and sustainable urban communities around the world. Following the traumatic events of 2001, New York City’s transformation is a tribute to the dynamic leadership of Mayor Bloomberg, the Departments of Transportation, City Planning and Parks and Recreation, as well as other city agencies, and to the dedicated partnership between the city and its stakeholders to implement a shared vision for the city. One of the key strategies underlying New York’s successful transformation in the last decade is the investment in public infrastructure to increase the city’s livability and sustainability. This illustrates the importance roles played State investments supporting public-private sector partnerships. Drawing on the above precedents, this paper will plot the growth of Marina Bay and its key Page 3 © 2012, CBRE Group, Inc.

contribution to the emergence of Singapore as a truly global city. It will discuss the evolution of Marina Bay, the involvement of both the public and private sectors’, provide a critique on its impact on Singapore’s Central Business District and offer views on the future outlook for this “game changing” location.

Marina Bay: “A Garden City by the Bay” A Brief History Back in March 2004, the Minister for National Development announced that Marina Bay would be Singapore’s key focus for development in the next 15 to 20 years. The Urban Redevelopment Authority (URA), Singapore’s national land use planning and conservation authority, was tasked as the master planner and place manager for Marina Bay. The vision for Marina Bay is “A Garden City by the Bay”. Notwithstanding this “green” lifestyle vision, Marina Bay would play a pivotal role to Singapore’s continued growth as an international business and financial hub, - it offered the prospect of a distinctive 24/7 location for business, living, working and leisure. Marina Bay was envisioned as a place for people to “explore, exchange and entertain”. In physical terms Marina Bay is a 360 ha development area created from reclaiming land off the seafront at Collyer Quay. Land reclamation has always played a prominent role in the spatial growth of Singapore’s Central Business District (CBD).


Introduction


Marina Bay – Extension of the Financial District

Whilst this represents tremendous expansion for Singapore when compared to the New York, this projected future office stock is still 40% smaller than that of Manhattan Downtown.

State Involvement URA - Master Planner & Place Manager

Source: URA

The traditional CBD of Raffles Place, Shenton Way and Tanjong Pagar is approximately 82 ha. Based on CBRE estimates, this traditional CBD yields about 21.6 million sf of office space. Years of development has led to the need for urban regeneration and a need for “breathing space” for the expansion of the CBD. As Singapore approached the new millennium, the continued expansion of Singapore’s economy as well as its fast growing financial sector, highlighted the need for a fresh supply of quality commercial space in order for Singapore to achieve its status as a financial hub. The next phase of reclamation works subsequently created Marina Centre and Marina South. These two areas are collectively known as Marina Bay. A new growth area of approximately 80 ha had been demarcated within Marina Bay and slated to be the new extension of the traditional CBD. This new growth area at more than twice the site coverage of London’s Canary Wharf was expected to deliver potentially 2.82 million sq m (approximately 30.4 million sf) of office space when fully developed. This is approximately equivalent to Hong Kong’s office space within Central. Hence, taking into consideration both the traditional CBD as well as this new growth area, the Singapore office space was expected to more than double in size to 52 million sf when its development potential is fully met.


The development of Marina Bay is modeled after a public-private partnership where the State puts in place infrastructure investments while development sites are released to the private sector for their expertise and entrepreneurship. Urban designs and planning objectives are articulated and achieved through conditions imposed on these sites. It is very important that URA is both the master planner and place manager for Marina Bay. Under this arrangement, the private sector is ensured a central governing body that is able to coordinate the infrastructural developments from its conceptual to the operational stages.

Development Flexibility: a distinct advantage for developers, corporate occupiers Marina Bay is planned around an urban grid pattern extending from the existing city grid network. Each parcel of land is readily prepared to allow development flexibility in the sizes of the land parcels via further amalgamation and sub-division as well as through the removal and creation of new access and service roads. Development flexibility is further extended to the developers when the development sites are zoned “white” by the URA. The “white” zoning offers these developers the autonomy for a variety of uses within the development as well as the ability to respond to changing market needs in the future. Another unique characteristic about developing in Marina Bay is the shape and size of the land lots available. Large regular land parcels not only benefits the developer in demolition costs and time savings, they also offer the developer the flexibility to create large and regular shaped floor plates in their developments.

Infrastructure Investments: a boon to Marina Bay Public sector investment has been pivotal to the successful development of Marina Bay. Marina Bay benefits from a slew of public sector investments in infrastructure. It has been reported that more than S$7.5 billion has been invested with an additional S$1 billion expected over the next 10 to 15 years. One of the key infrastructural investments is the Common Services Tunnel (CST). This 20 km CST is a comprehensive underground network that will house telecommunication and utilities provisions complete with 100% emergency backup services that will be readily accessible for immediate usage, for expansion or to meet changing utility needs. With the CST, disruption caused by road excavation is eradicated and easier project contruction is ensured as the road system can now be utilised. At a cost approximately $250 million, Singapore is the first country in Southeast Asia, and the second Asian country after Japan, to implement a CST system within a development area. The CST, will also accomodate an underground suction garbage disposal system, also called the pneumatic refuse conveyance system (PRCS). The National Environment Agency has launched a request for proposal for a design, build, operate contract for the PRCS in Marina Bay for a 30-year period. Other major key infrastructure developments include the $110 million District Cooling Plant, where individual developments within Marina Bay are not required to provide individual chiller plants and cooling towers so that they are able to utilise such space for other creative uses; the $226 million Marina Barrage, which is a tidal barrier built across the Marina Channel that also forms Singapore’s 15th reservoir and the first city reservoir; a comprehensive transport network with at least six linked metro stations by 2020, new road extensions


to the city and airport as well as water taxis as an alternative mode of transportation. In addition, the Marina Centre, Collyer Quay and Bayfront areas are now connected with a 3.5 km landscaped waterfront promenade. The Bayfront Bridge and Helix Bridge will enhance vehicular and pedestrian accessibility respectively. To reaffirm the vision of Marina Bay to be “A Garden City by the Bay”, the first phase of the Gardens By The Bay, the Bay South Garden was opened in June 2012. When fully completed, Gardens By The Bay will consist of Bay South, Bay East and Bay Central and will occupy 101 hectares of prime land by the water at the heart of Singapore’s new downtown at Marina Bay.

Marina Bay: A Global Business Hub Given the strong public sector involvement, Marina Bay was primed to attract both investors and occupiers from around the globe. With the URA regulating the release of land in line with anticipated market demand, the financial industry was naturally, a chief target. Marina Bay stands out not only for its ability to attract MNC occupiers, but a sizeable number of foreign investors who have been actively involved in building up an impressive number of iconic developments along the Bay. So far, investments into the Marina Bay have come from both local developers as well as developers from Hong Kong, USA, Malaysia and Australia. To date, Marina Bay boasts a high concentration of MNC financial institutions. This is in part a result of the MAS’ five-year programme to liberalise Singapore’s banking sector with the creation of the Qualifying Full Bank (QFB), a new category under the foreign banks category was set. So far, six banks with regional and international standing have been awarded the QFB licences. In addition, the multinational banks have also continued to be active in the wholesale banking market and in wealth management. They are also using Singapore as their base to service corporations and high net worth individuals in the region.


Such floor configurations are favoured by multinational companies (especially financial institutions) who prefer to be located in large efficient columnfree office spaces, supported by state-of-the-art specifications like back up power, generous floor to ceiling height etc.


Major financial institutions, including the likes of Standard Chartered Bank, Credit Suisse and Barclays Capital have also decided to relocate many of their regional and global functions to Singapore. The liberalisation of Singapore’s financial sector inevitably led to a boost in occupier demand for office space, especially in the CBD area. There is a myriad of occupiers from different industries domiciled from across the world, a testament of Singapore and Marina Bay’s global attractiveness.

Occupiers By Country of Origin

9% 29% 18%

2% 1%

4% 19%

5% 3%

7%

1%

Australia Canada China France Germany Holland Hong Kong Japan Singapore Switzerland united Kingdom uSA others

1%

Source: CBRE Research

One Marina Boulevard Singapore Labour Foundation Office: 395,600 sf

2004

Source: RQAM

Source: CDL

Source: Lucian Teo

One Raffles Quay

The Sail @ Marina Bay

Marina Bay Sands

City Developments

Las Vegas Sands

1,111 Residential Units Retail: 29,000 sf

Retail: 800,000 sf Convention Space: 1.3 mill sf 2,561 Hotel rooms

Keppel Land, Cheung Kong (Holdings) Ltd and Hongkong Land) North Twr Office: 776,100 sf South Twr Office: 565,000 sf

2005

2006 Common Services Tunnel P1


2007

2008

2009 Marina Barrage

Not surprisingly, when broken down into continents, it is also shown that most occupiers are from multinational companies domiciled in Europe (51%), Asia (22%) and North America (20%).

Occupiers By Continent of Origin

7% 22% Asia Australia Europe north America

20%

51%


Source: UIC Ltd

V On Shenton Source: RQAM

Source: RQAM

Source: MGPA

Source: RQAM

Marina Bay Residences

Marina Bay Financial Centre

Asia Square Tower 1 & 2

Marina Bay Suites

Keppel Land, Cheung Kong (Holdings) Ltd and Hongkong Land)


MGPA


428 Residential Units

Office: Twr 1: 614,000 sf Twr 2: 987,000 sf Twr 3: 1.3 mill sf Retail: 179,000 sf

2010 Helix Bridge

2011

Office: Twr 1: 1.26 mill sf Twr 2: 782,300 sf Retail: 61,000 sf 280 Hotel rooms

2012 Gardens By The Bay

Source: Lucian Teo Source: Lucian Teo


UIC Ltd Office: 290,000 sf 510 residential units

221 Residential Units

2013

2015-2016

Marina One M+S Pte Ltd Office: 2.2 mill sf Retail: 1.83 mill sf Approx 1,000 residential units

2017


According to CBRE statistics, while a relatively significant portion of occupied space in Marina Bay is from Singaporean firms (18%); the two largest occupier nationalities are from United Kingdom (29%) and USA (19%).

With limited land, new development sites in Singapore’s CBD were scarce and hard to come by. New CBD office supply was thus very tight from 1999, despite facing growing demand. The limited major supply to come online was Capital Tower (717,357 sf) and SGX Centre 1 & 2 (277,709 sf & 284,998 sf) in 2000. Springleaf Tower was the only other supply to come on later in 2002. The completion of One Raffles Quay North & South Towers (565,000 sf & 776,084 sf) and One George Street (445,000 sf) in 2006 was timely as it coincided with the liberalisation of the financial industry. During this period, major financial institutions were in an expansionary mode, seeking for quality buildings strategically located and able to offer large contiguous space to consolidate their businesses. As a result, office space absorption grew and vacancies dipped. Boosted by positive GDP growth, office demand grew and office rentals also started to climb.

Office Supply and Demand

3,500

14.0%

3,000

12.0%

2,500

10.0%

2,000

8.0%

1,500

6.0%

1,000

4.0%

500

2.0%

0

0.0%

net Absorption (LHA)

net new Supply

2011

H1 2012

2010

2009

2008

2007

2006

2005

2004

-4.0% 2003

-1,000

2002

-2.0%

2001

-500

2000

In 2004, Marina Bay welcomed the first office building with the completion of One Marina Boulevard (395,600 sf). Office supply still remained tight with strong absorption levels, compressing vacancy rates and still no new supply for 2005.

CBD W 8cmCore

1999

The introduction of Marina Bay as a potential extension of the existing CBD presented the private sector an “empty canvas” for future investments and developments. The pace of momentum in leasing activity has been frenetic, as a result of the pent-up demand in the early 2000s.

nLA ‘000 sf


Office Dynamics

Vacancy Rate (RHA)


From 2007 till 2009, tight supply conditions prevailed. During this period the only major confirmed CBD supply on the horizon was from the completion of the first phase of Marina Bay Financial Centre in Marina Bay scheduled for completion in 2010. During this supply crunch, rental growth peaked with Grade A Office rents recorded at S$18.80 psf per month in Q2 2008. The last quarter of 2008 marked the impact of the Global Financial Crisis when Grade A Office rents fell by more than 50% to S$8.00 psf per month. The resilience of the Singapore economy and office market was demonstrated when Grade A Office rents witnessed a quick recovery from Q2 2010. This strong recovery phase was relatively short-lived with Grade A Office rents reaching S$11.05 psf per month in Q3 2011, as the effects of the Euro Debt Crisis started to impact the key banking sector in particular resulting in a break on Grade A Office rental growths. However, it should be noted that the recent trough in the Grade A Office rental market has illustrated a resilience and suggested a new low in this market. While rental growth is not expected to mimic the stellar growth during the 2006 – 2008 supply crunch episode, Grade A Office rents are also not expected to correct to the levels as experienced over the past decade.


Strong Leasing Performance for Marina Bay Buildings 100% 90% 80%

Grade A Office Rents W 8cm

70% 60%

24

50%

22

40%

20 18

5-yr Historic Grade A Rent: S$10.6

16 14

30% 20%

12

10%

10

0%

8

10-yr Historic Grade A Rent: S$9.1

6

4

oRQ South Tower

oRQ north Tower

MBFC Tower 1

occupied Space

MBFC Tower 2

MBFC Tower 3

Asia Square Tower 1

Vacant Space

2

Grade A: MAX

Grade A: MIn

Grade A Rent

Q1 2012

Q1 2011

Q1 2010

Q1 2009

Q1 2008

Q1 2007

Q1 2006

Q1 2005

Q1 2004

Q1 2003

Q1 2002

0

Core CBD Rent


With a prime waterfront location, higher specifications and larger floor plates, buildings in Marina Bay have contributed to a rise in the overall average market rent. There is a potential for the median Grade A rents to grow further in the long term as the market matures and with the improved quality of stock.

Phenomenal Leasing Success The office developments at Marina Bay have enjoyed unparalleled leasing success. All of the buildings have been built speculatively (except One Marina Boulevard) and the endeavour shown by the developers has been richly rewarded. Of the six office towers totaling 5.5 million sf completed since 2006, the average pre-lease commitment level upon completion is 82 %. This is an extraordinary leasing performance by any global comparison especially with four out of the six towers (One Raffles Quay Tower 1 and Tower 2 and Marina Bay Financial Centre Tower 1 and Tower 2) were essentially 100% pre-let upon completion. The quality of tenant mix and covenant strength is another stand-out feature of the leasing activity at Marina Bay. Fortune 500 companies abound with many of the leading international banks at the forefront.



Quality Buildings The inclusion of Marina Bay buildings also boosted the number of quality buildings in our office basket. Taking floor plate size as a benchmark, there are at least fourteen office developments in the CBD that can offer floor plates of more than 20,000 sf, with three more in the pipeline. In terms of total quantum, these buildings can offer approximately 13.5 million sf of large column free contiguous space. Out of these fourteen office developments, more than half are located in Marina Bay. By contrast it is noteworthy that Hong Kong has only four office developments that can offer floor plates of more than 20,000 sf representing approximately 3.6 million sf of such office stock. This is slightly less than a third of Singapore’s equivalent office space. The emergence of new office developments many of which are located in Marina Bay has contributed to certain older buildings in the traditional CBD facing up to functional obsolescence. An interesting by-product is that this has driven urban rejuvenation. Several older office developments have either been refurbished or redeveloped in order to maintain their relevance in the market. 71 Robinson Road, Ocean Financial Centre and One Raffles Place Tower 2 are examples of such recent redeveloped commercial buildings.


While the 10 year average for Grade A Office rents is calculated to be S$9.10 psf per month, the 5 year average has risen to S$10.60 psf per month. The higher trough value and average value reflects the influence of Marina Bay buildings in the rental basket.


Distribution of Office Space According to Floor Plate Sizes 11%

Occupier Profile in Marina Bay

9%

5% 5%

39% 44%

>20,000 sf 20,000 – 30,000 sf