The evolving Singapore CBD

Aggressive slum clearance in Singapore began in the 1960s. Slums along the Singapore River were cleared for a new downtown in an era when single-zoned uses were common. There were mixed uses, but they were mostly retail podiums supporting the offices above. Today, you can still see pockets of such developments, e.g. Shenton House and International Plaza, while others, such as the Clifford Center, are slowly being replaced with modern mixed-use concepts. While this has been a private market endeavour, some have been motivated by government incentives, such as the CBD Incentive Scheme, where landlords of older office developments are accorded additional density conditional on a mixed development and a reduced office quantum. The scheme was introduced in 2019 to encourage rejuvenation and increase the night population in the CBD. In its original form, this policy has gained interest but lacks traction to create a critical mass for a vibrant inner city.

The policy has been recently extended for another five years and expanded to include Anson Road and Cecil Street. These new areas are a welcome inclusion as they have more buildings that were built in the 1970s and 1980s. A collection of private housing already exists, such as The Clift, Sky Suites, and the Tanjong Pagar Plaza – a public housing project built in the 1970s. Extending the scheme here should build a critical mass that supports the growth of F&B and retail. However, the policy's overall effective area should have been reduced. Singapore is a mature market, and returns are tight; our urban policy should be more targeted to channel the limited financial resources to more critical areas. The past five years would have given urban planners a sense of where private capital finds the most profitable return. Focusing on these areas would encourage more private capital investment to tap into the policy[1] and build critical mass, attracting further opportunistic capital.

Figure 1: Rents and Rental Gap in Singapore office market

Source: URA, JLL Research 4Q2024

Separately, the rental gap between high-quality office assets in the CBD and Orchard Road (Cat 1) and all other grades islandwide (Cat 2) has widened from 89% in 2022 to 92% by 2024. As could be expected, these high-quality buildings have also recorded higher occupancy and more substantial rental growth. With a limited new supply over the next four years, the rental gap will likely widen further. Alongside the CBDI scheme, which is likely to result in a further reduction in office stock, the government should consider releasing infill sites to avoid a repeat of the office rental market in 2007/2008, when a limited supply led to the URA Central Region office rental index surging 15% q-o-q in 3Q 2007.

It is also an opportune time for landlords to upgrade their assets strategically. With interest rates to remain higher for longer, investors seek out assets with more substantial income potential since capital revaluation is unlikely in the short term. This is an opportunity for landlords and investors to extract value from underperforming assets in the CBD.

_{[1] Source: URA, Circular No: URA/PB/2025/02-CUDG}