Singapore: Asia s Global Gateway. Mapping out the future of the Singapore office market Offices 2020 City Report

Transcription

1 : Asia s Global Gateway Mapping out the future of the office market Offices 2020 City Report

2 Offices 2020 Preparing for changing trends today As part of a suite of Office 2020 reports on six Asian cities, this report seeks to answer Where next for? Themed around eight specific questions, we explore how the big picture will shape the offices landscape to This is not about predictions it s about building the best possible assumptions about the future and identifying a variety of opportunities that will help you to start the conversation to support your decision-making today and enable your business to outperform in the future.

3 , are you ready for the future? is a survivor. Locals take pride in the highly effective government that is always ready to seize the next opportunity. This speaks of the city-state s flexibility and resilience. has many advantages in today s highly competitive international offices market. It releases new land for exciting commercial developments and in recent years, it has built a strong base of prime Grade A stock while continuing to develop and improve its infrastructure. The government skilfully steers the economy and promotes growth. Furthermore, it hosts a business-friendly environment that will continue to pull occupiers from across the globe, while its outstanding, leisure-based, settings and amenities offer an attractive lifestyle for best in class talent. The world is coming to Asia and the Association of Southeast Asian Nations (ASEAN) holds enormous promise. Everything is lined up for a shining future for. We held round-table discussions with key occupiers and landlords to debate the future of, and, more specifically, its office market, towards Could be held back by a lack of ambition culturally, politically and commercially? Can the government continue to drive growth without restraint? In short, will undermine its own prospects by being too insular, too small, too safe? The view around the table is that the most likely scenario will be one where will apply a steady growth formula. However, this certainly does not imply a lack of change. Government-led initiatives, including integrated, mixed-use, business hubs in the city and suburbs supported by impressive infrastructure projects, will provide a strong direction for the market. With its location at the heart of Asia Pacific the guidence of a supportive government, is well placed to cement its status as a global gateway, providing a boost to the office market toward Start the conversation At the end of each section of this series of city reports, we have interspersed some thought-provoking questions to inspire further consideration on the implications of our findings for your business. To be best positioned for the future, have you thought about these things Will its unique profile keep competitive and aid its growth? How will s office geography change, and are there attractive locations on the rise? What will influence relocation decisions going forward? How will office designs evolve with the advent of new technology and workplace practices? Are companies re-examining the case for office ownership, or will remain a leasing market? Can s green agenda drive efficiencies for landlords and tenants? Chris Archibold Head of Markets chris.archibold@ap.jll.com Dr Chua Yang Liang Head of Research yangliang.chua@ap.jll.com Andrew Tangye Regional Director, Markets andrew.tangye@ap.jll.com Join the conversation and share your views by visiting : Asia's Global Gateway 3

4 Offices 2020 DRIVERS OF GROWTH Will its unique profile keep competitive and aid its growth? As a trading port for the last two centuries, has always been open to the outside world, and recent times have proven no exception. When Asia began to open up economically 15 or so years ago, responded by liberating its financial markets and then relaxing its already open immigration policy in Today, sees itself as central to the ASEAN Economic Community and the whole of Asia Pacific. A number of corporate relocation decisions give substance to this ambition, with Deutsche Bank, Shell Upstream International, Chevron and Japan s Panasonic and Hitachi all choosing as their Asia Pacific HQ. Looking to 2020, could yet be more ambitious and aim higher than regional hub status. In the Asian Century, a flow of companies (from the West and the East) could be tempted to relocate their global HQs here. is well positioned to attract new global HQs - and take its growth path into orbit. Drivers and inhibitors of growth in Lack of land resources Structural change to a high value economy Favourable legal and business environment Targeted incentives to attract specific sectors Inflationary cost environment INHIBITORS Economic growth strongly connected to global demand Diverse employment base with high value educated workers High standard of living DRIVERS 4 : Asia's Global Gateway

5 Total space leased in in new developments by industry 2006 to date Top 250 occupiers in the office market Communications and IT 6% 7% Other Pharmaceutical & FMCG Others 6% 4% 9% Professional/ Business Services Professional/ Business Services 21% 44% Financial Services Oil & Gas Manufacturing Government Bodies 6% 1% 10% 54% Financial Services Oil and Gas Legal 8% 9% 2% 3% Manufacturing Real Estate Communications and IT 10% Source: Jones Lang LaSalle, 2013 Source: Jones Lang LaSalle, 2013 With virtually no natural resources and limited land to play with, it would seem obvious for to make the high-value play and expand its sphere of influence. Already, the government s economic policy favours high-value sectors such as financial and business services, but will have the confidence to grab the opportunity and achieve a truly global status? Healthy economic and employment growth stands at the bedrock of a thriving office market. Among others, three dynamics in particular will be important to future employment opportunities in : Outsourcing: Many large occupiers may spread their risk of having too many eggs in one basket. This means a continuation of the trend towards outsourcing of back office jobs in banks and other industries to places such as India and the Philippines. Government initiatives: The government will continue to support attracting higher value business to. Government initiatives will range from tax benefits to providing a strong, supportive, infrastructure and a wider growth platform for specific industries. Regulation/legislation like Basel III will require many banks cutting their capital-intensive businesses and reducing their headcount. A small counterbalance will come in the form of the banks in-house regulatory functions, which should grow to meet the demands of various global and national regulatory bodies. Some of the main inhibitors of growth are not immovable. s future lies, enviably, in its own hands and in the dynamism of a number of sectors. The occupier profile that has dominated over the last decade will continue to drive growth going forward, with corporates in financial services, legal, pharmaceutical, petrochemical, FMCG and consumer electronic sectors likely to drive activity in the office market. Start the conversation Plan your future space requirements. Occupiers will experience intensifying competition for office space towards In particular, large, prime floor plates in CBD locations (attractive to high end, regional and global HQ offices) will become increasingly difficult to source, with build-to-suit often the only option. Know your customers. Going forward, collaboration between developers and occupiers will become even more important. Growth will increasingly come from high-end, often demanding occupiers. Therefore, anticipating their needs and locating and configuring office space in a way that adds value will be crucial. : Asia's Global Gateway 5

6 Offices 2020 LOCATIONS OF CHOICE How will s office geography change, and are there attractive locations on the rise? is a privileged location. Being one of the world s most densely populated cities, it has a high social fabric that will continue to drive communication, innovation and specialisation to Meanwhile, immigration-led growth will see the population rise from 5.3 million in 2012 to around 6 million by This all suggests further improvement in economic productivity to There are great changes in store for s urban geography over the next seven years. Driven by government initiatives and land release programmes, captured concisely in the city s master plan, the town planning axes are laid out for everyone to see. The five locations that will see the greatest transformation are the CBD and the four regional centres. These changes to the office landscape are well underway, and the government is underpinning these initiatives with heavy investments in infrastructure. Three new MRT lines are planned to open by 2020, with the Downtown, Thomson and Eastern Region lines, adding more than 85 kilometres and 60 new stations to the MRT system 2. Furthermore, the international rail link from Kuala Lumpur to is planned, with an initial completion deadline for Looking towards 2020, one surprise might be the extent to which s (economic) reach will change. Better rail connections to Johor and KL could cause shifts in trading and commuting patterns. Off-shoring to Malaysia (and beyond to Vietnam, for example) may increase, and many back-office jobs are likely to move north. Looking to escape the sultry city, a significant number of (younger) ans could become commuters from Malaysia. Image credit: Iskandar Medini Residences Iskandar is the southern development region in Johor, just over the border from Malaysia. The special economic corridor, which will cover three times the area of, has already attracted over SGD 40 billion in foreign investment and often acts as an overflow for an businesses. More and more companies will move/ expand parts of the business lower down the value chain (such as manufacturing and logistics operations) to Iskandar, while keeping the high-value end in. 1 Government white paper A sustainable Population for a Dynamic, Land Transport Authority 6 : Asia's Global Gateway

7 The office market will experience a significant expansion and reshaping in the next seven years. Expect to see not only a much bigger CBD by 2020, but also increasingly mature business parks in the four regional centres, each with clear sector specifications. In the future, what makes a successful location will depend on sectors and functions more than ever before. Take fore example the financial services sector, where having a prime location will remain a key differentiator. CBD locations help with staff retention as many will continue to see these plan as a badge of status and where the action is. Meanwhile, the use of office buildings and locations in brand wars will intensify, so expect to see more fuss around iconic products and branded spaces in key central locations. Going forward, financial services will increasingly see CBD locations as appropriate for front-line staff, with the back office even mid-office shifted to Changi (or even outsourced elsewhere in ASEAN). However, many other sectors are not typically CBD occupiers. In particular, for sectors where scale is important and office space makes up a significant proportion of operating costs, locations in and around the newer business campuses outside the city centre will be preferred. Despite this need for a specific approach to site selection, more general criteria can be identified that most sectors will apply when considering suitable locations. Unlike in most other cities where structural iconism is achieved through stature, technical height control in prohibits many such developments, with just a few exceptions. The cityscape is likely to develop the creation of iconism through urban space design elements, including the creation of public spaces, to encourage shared experiences more than mere physical height (South Beach complex). Office location criteria Close proximity to a transport hub Good car, taxi and cycle access Strong aesthetics, pleasant surroundings and green spaces Close proximity to customers, suppliers and competitors Underground, air-conditioned walkways Diverse retail, food and beverage offering Leisure & entertainment ability Mixed-use (hotels, residential) : Asia's Global Gateway 7

8 Offices 2020 Key office locations in and sectors focus N Creative industry/ SMEs related to Iskandar WOODLANDS Aerospace North SELETAR EXPRESSWAY (SLE) SELETAR PULAU UBIN PULAU TEKONG R&D, petrochemical, pharmaceutical JALAN AHMAD IBRAHIM KRANJI EXPRESSWAY (KJE) PAN ISLAND EXPRESSWAY (PIE) JURONG AYER RAJAH BUKIT TAMAH EXPRESSWAY (BKE) PAN ISLAND BUONA VISTA EXPRESSWAY BISHAN (PIE) CENTRAL EXPRESSWAY (CTE) SERANGOON PAN TAMPINES ISLAND EXPRESSWAY (PIE) K ALLANG - PAYA LEBAR EXPRESSWAY (KPE) PAYA LEBAR CHANGI/ TAMPINES EXPRESSWAY (TPE) EAST COAST PARKWAY (ECP) Financial services/ Banking WEST COAST HIGHWAY EXPRESSWAY (AYE) MARINE PARADE SENTOSA ISLAND CBD Core Orchard Road Corridor Rest of Central Sector Specialication Decentralised Area Regional Centre Sub-regional Centre Business/science parks N SELETAR North Major Urban Projects Extension of the CBD into Marina Bay Regeneration of Shenton Way/ Tangong Pagar precinct Mixed use developments at Tangong Pagar and South Beach Opening of four regional centres in the periphery Developments in five sub-regional centres (Buona Vista, Serangoon, Paya Lebar, Bishan, Marine Parade) EXPRESSWAY (SLE) PULAU UBIN PULAU TEKONG West JALAN AHMAD IBRAHIM KRANJI EXPRESSWAY (KJE) PAN ISLAND EXPRESSWAY (PIE) AYER RAJAH BUKIT TAMAH EXPRESSWAY (BKE) WEST COAST HIGHWAY PAN ISLAND EXPRESSWAY Bishan (PIE) Central Buona Vista CBD CENTRAL EXPRESSWAY (CTE) North-East PAN K ALLANG - PAYA LEBAR EXPRESSWAY (KPE) TAMPINES Paya Leber ISLAND EXPRESSWAY (PIE) EAST COAST PARKWAY (ECP) EXPRESSWAY (TPE) East EXPRESSWAY (AYE) KEY MRT Route Expressway Region Boundary SENTOSA ISLAND International Business Park (IBP) Science Park Alexandra Changi Business Park (CBP) Source: Jones Lang LaSalle Research 8 : Asia's Global Gateway

9 Major future developments The Tanjong Pagar Centre, will be the tallest building in at 290 meters. The 1.7 million sq m mixed-use development will comprise of a 38-storey prime Grade A office building (Guoco Tower), high-end residential apartments, six levels of retail space and a luxury hotel with 200 rooms. DUO Tower Marina One Jurong Gateway Paya Lebar Square Fusionopolis 3 (Nexus) 5 Shenton way The Metropolis South Beach Tower The Mountbatten (223@Mountbatten) Orchard Gateway Guoco Tower Fusionopolis 2A Asia Square Tower 2013 CapitaGreen 2014 Fusionopolis Robinson Tower 2016 CBD Core Marina Centre Orchard Road Corridor Decentralised Area Source: Jones Lang LaSalle Research Start the conversation Review your portfolio strategy. will see the development of a number of office hubs that seamlessly align with the profile of certain sectors and functions. Ensuring your office space is positioned in the most relevant location for its purpose can gain significant productivity and cost efficiency gains. Awareness away from the shine of the CBD. Although the CBD will continue to be very successful, the availability of land is limited. Investors should focus on the exciting opportunities in the regional and subregional centres. Success in these locations will be achieved through understanding the specifics of the corporate agenda in addition to adhering to more general requirements such as good accessibility, infrastructure and amenities. : Asia's Global Gateway 9

10 Offices 2020 WINNING THE RELOCATION DECISION Which factors seal the deal? In the offices marketplace, there is often a general agreement that it all comes down to cost, which leads to the implicit perception that innovation and differentiation have little place. Will this change towards 2020? Will new office product be persuasive enough to encourage occupiers to relocate? Some office features and innovations will become increasingly important and will influence future developments. A number of recent developments, such as those in one-north, have managed to integrate these features and indeed been successful, enticing occupiers to relocate. But how many will actually be realised in the market? Even in the case of one-north, infrastructure, retail, restaurants and hotels are all taking time to catch up with the office component. Key Office Features Technical Functional Mixed-Use Environment Aesthetics Greener and more energy efficient Bigger, column-free, floor plates Dual power feed Business continuity planning Build and fit out to suit Sky lobbies Concierge services Airport lounge clubs Co-working spaces Common spaces for hire Gym facilities Child care Integrated external amenities including parking and public transport Mix of offices and serviced offices Hotels Serviced apartments Convention facilities Leisure, retail, restaurants and bars Unique entertainment (rooftop bars and integrated micro-breweries) Highly designed common areas Iconic shells 10 : Asia's Global Gateway

11 In spite of the development of regional office locations outside of the CBD, companies will not rush to relocate as there is a real risk that staff will not follow. On the North Coast of the island, Woodlands is in a public consultation phase and implementation towards a truly integrated mixed-use scheme will take up to 10 years. Indeed, in general terms, office developments are running ahead of the governments ability to provide the supporting nodes and structures. As a rule of thumb, we can say that it will take 10 years before the business parks become vibrant, living micro-locations. Between 2013 and 2016, around 2.8 million sq ft of office supply will be added to the CBD market. This equates to 930,000 sq ft per annum; in line with 20 year average demad of 1.08 million sq ft in the CBD. Adding to this incomplete pull is the uncertainty about the push. There are a whole host of traditional risks to relocation that soften push motivations. This also means that often, occupiers are comfortable where they are. On top of these reasons not to relocate, landlords also do their part to retain sitting tenants by creating their own set of opposing pull factors. Although overall stock is relatively young in, retrofitting and refurbishment of building façade and common areas will become increasingly common. Examples include 6 Battery Road and Capital Square, where the overall look of these older buildings has been revitalised with great success. Upgrading of property and asset management services to provide higher quality service as well as providing more amenities such as gym facilities allow tenants to find sustained value in their current space and, thus, strong reasons to stay put. Such measures allow existing buildings to reposition themselves against new buildings, further weakening the push to relocate. Taken together, these are persuasive reasons not to relocate, and when it comes down to it, most occupiers will only look to relocate when the decision is imposed upon them for example due to business expansion or contraction or, often, when a new CEO takes the reign. When that time arrives, and only when that time arrives, will the differentiated advantages of new office design, functionality and amenities come into play as a sales argument. So, the real question around relocation comes down to: Will we see high levels of corporate activity (through M&A, consolidation and expansion)? Based on the past turbulence and business animal spirits, an uneven stream of strategy-led churn in the an offices marketplace to 2020 is the most likely outcome. Don t forget to consider the risks Reason to stay Cost of write-offs and relocation Increasing restrictions on CAPEX Destabilising workforce Loss of workforce Possible risk with new, unknown landlord New rental terms and agreement Start the conversation Timing is everything. Committing early to gain first mover advantage in new buildings or taking over fitted spaces before they are reinstated by outgoing occupiers can also reap significant cost savings. A strong portfolio strategy will ensure a smooth relocation process, while minimising disruption and inconvenience for your staff and wider businesses. Sweeten the deal. With an occupier base that is often unwilling to move, a relatively small investment in good property management will significantly improve occupier retention. Furthermore, for new buildings, offering signage rights and naming rights as deal sweeteners is key to securing occupiers with a strong focus on corporate brand image. Flexibility in terms of phasing, expansion/ contraction rights or right of first refusals offer new occupiers the freedom to grow or shrink according to their business requirements. : Asia's Global Gateway 11

12 Offices 2020 EVOLVING WORKPLACES How will office designs evolve with the advent of new technology and management practices? There is nothing new about the questions: How should we work? and What are offices for? Today s management playbook sees several trends sweeping the globe, including: open-plan offices, improving desk occupancy, space densification, mobile working and encouraging collaboration., with its high contingent of multinationals, that are often early adaptors of alternative workplace practices, has experienced an increase in the use of activity-based working for a number of years, and this will continue. In desk occupancy, MNCs are leading the way in, pushing ratios to one desk per 1.2 employees (1:1.2), on average. Some service companies are even experimenting with 1:3, while some sales organisations have pushed ratios to 1:8. Our discussion panelists felt that, going forward, such high occupancy ratios may not necessarily become the rule. Regarding space densification, some companies have come down to one desk per 70 sq ft, while others have remained stubbornly high at one desk per 150 sq ft. Partly, this is sectorial, with more highly skilled and often more senior workers given more space. Futhermore the additional strain on office infrastructure does not always easily support very dense desk environments. Expect densities to edge up, but revolution is unlikely. 12 : Asia's Global Gateway

13 Where new working practices take hold, it is because they have been sold in culturally and not solely driven through a cost agenda Turning to new work practices, we can expect to see increased use of mobile devices and more agile working. Many companies will increasingly encourage mobile working in an effort to improve productivity. In a government supported initiative, the Land Transport Authority (LTA) is currently running a pilot with 12 large companies to stagger hours and encourage home working in an effort to reduce peak hour congestion. The trend towards redefining the essential role of an office as a place to encourage interaction, collaboration and innovation will proceed quickly. As machines take on basic functions (such as translations and call handling), employees become valuable from what they can produce together, not what processes they can undertake. Knowledge workers are elevated in importance in contrast to administrative and middle management posts. And office environments will have to reflect this shift. For the built environment, improved space productivity may lead to lower overall demand for office space. However, counterbalancing this is the new need for collaborative spaces, such as break-out areas, chill-out zones, play-pods etc. Ultimately, there is no compelling evidence that these productivity measures will translate into a significant downsizing of offices although some expanding companies may postpone relocation by squeezing new headcount into the same space. The biggest changes may be technical, ranging from the building load and upgrades to operating systems such as cooling or lift provision. Other changes in technology will provoke a re-evaluation of the built structure too. Changing office work practices will not bring a revolution to the physical specifics towards although change clearly has increased since the global financial crisis as companies look to increase asset, workplace and people productivity. Technology trends Wi-Fi and potentially the future use of wireless electricity mean that raised floors will be reduced and/or eliminated in new builds and will have the effect of bringing old stock out of the shadow of obsolescence and back into play. Cloud computing will push many data centres out of offices allowing cores to be smaller, lighter, cheaper. Space would clearly be saved and given over to workspaces allowing higher densities overall. Collaborative technologies will support changes to the purpose of offices and influence office layouts; For example, most video-conferencing technology is housed in closed meeting rooms. Cultural change is about offering choice and can be a slower process than often expected. Take the move to open office space; this is a transition that has been going on for several years, and yet closed offices still populate a significant part of the office landscape. Nevertheless, all these do add up to a new agenda for developers -new builds will need to have, at minimum, an increased functional load and lighter cores, while fit-outs will be shaped by more open and collaborative space. Start the conversation Analyse your staff profile. Corporates should carefully asses prefered work practises of their staff. Preparing for the potential impact/pushback of new workplace practices and technologies will be crucial to guarantee optimal efficiency of your workplace. Invest in flexible office space. Flexible office space that allows for open, collaborative floor plates will be in highest demand going forward. Although the impact of new technology and space utilisation trends won t be dramatic, investors and developers should target. Stock that serves the basic flexibility, collaboration and technology needs. : Asia's Global Gateway 13

14 Offices 2020 RE-EXAMINING TENURE Are companies re-examining the case for office ownership, or will remain a leasing market? Asia is likely to move from the rising star box to the cash cow category for many major corporations. Consequently, Asia will increasingly be seen as a long-term play, and this change will affect decisions on office space. In fact, this process has already started. In Hong Kong some major banks are now buying instead of renting, while major oil and gas companies are also thinking along these same lines. Although owner occupation is not expected to become a major trend in, the strategic, long-term focus on Asia is likely to increase the length of leases large multinationals are willing to sign. Of course, in many sectors, offices are typically not the strategic asset class companies focus on. Manufacturers will, for example, look to invest in plants, while oil & gas companies will focus on refineries. For many of these companies, offices remain a generic product. However, this doesn t negate the fact that going forward, many companies that look to locate their global headquarter out of might consider the option of longer leases or even buying. DBS s purchase of MBFC tower is a good example of this. The choice to own is not a straightforward one. When real estate is not part of a company s core investment, ownership brings nuisances and more. It weighs on company s balance sheets, requires cost provisions, and needs on going management. But, once again, strategically, many companies will favour the fact that ownership removes the building from the vagaries and cyclical pattern of the rental market. In some cases, the issue is less likely to be around the pros and cons of ownership vs leasing, and will increasingly come down to the simple availability of stock. The lack of product for sale in will constrain occupier choice and might lead attractive companies to invest in competing cities. Looking ahead, the majority of s offices will remain leased driven by land tenure laws that see a 99-year freehold leasehold ownership. Landlords are likely to retain a reasonable amount of control, as occupier demand (net take-up) will edge forward in the years ahead. There will be a major rethink about Asia and this will cause some companies to buy strategic properties. 14 : Asia's Global Gateway

15 Wild card trends influencing office tenure Serviced Offices Serviced office providers such as Regus, The Executive Centre and Servcorp are increasingly finding active takers among start ups and mobile businesses that are dipping their toes in the / Asia market. These corporates value the flexibility within a Prime Grade A office building, before moving to owner-occupancy once their business has gained enough traction. Strata Ownership Strata office ownership in will continue its upward momentum as retail investors seek alternative investment product. In the meantime, some SMEs also increasingly prefer ownership to ensure improved stability of long-term operational costs. In 2012, strata sales reached a new all-time high and, as sustained interest peak, the strata office stock will be expected to grow significantly as we move towards Liquid Space The recent trend of liquid space will see smaller companies put their surplus office space online, inviting other businesses to take up any temporary slack. Think Airbnb for the office market. This is in addition to the large MNCs subletting surplus space (vacant because of the economic downturn and long lease lockdowns), to smaller tenants. Start the conversation Influence the development agenda: Although parts of the markets will remain landlord favourable (CBD) some emerging, regional centres will need to attract occupiers. This will create the opportunity for occupiers to influence the development agenda and edge towards a more favourable cost-benefit equation. Opportunity for signing longer leases. With many organisations seeing as a long-term play, occupiers will be increasingly willing to sign longer leases. Developers will need to anticipate occupiers needs in an early stage, be more responsive and offer a broad range of branding and flexible fit-out possibilities to deliver aligned developments. : Asia's Global Gateway 15

16 Offices 2020 THE SUSTAINABILITY AGENDA Can s green agenda drive efficiencies for landlords and tenants? As elsewhere, today s sustainability agenda in is stuck somewhere between legal obligation, good intention and marketing differentiation. Unfortunately (for the planet), this hybrid status is not likely to receive much clarification towards Globally, leads in the sustainability agenda, together with many other mature markets. The an government, through the Building and Construction Authority (BCA), has promoted a number of sustainability initiatives in recent years. All new builds need a BCA certification (of which accreditation is rather straightforward). Meanwhile, new legislation seeks to begin the long process of greening older stock. Furthermore, there is a move to extend Green Mark/LEED certification beyond the office building itself and into the spaces and places surrounding the development. Finally, has quite tight controls on building materials that can be used in construction for example, limits to the use of reflective glass (which heats the environment). Some an developers are taking the initiative and are building green offices beyond what is required by law. Their motivations vary. For a select few, this might be socially motivated, but for most, it is another way of creating a future-proofed and differentiated product that can be marketed as such. But do tenants care? A fundamental law of economics is that customers only pay for what they value. Developers complain that tenants are unwilling to pay a premium for green buildings, and that they are not really valued in today s marketplace. Certainly, no one is hurrying to sign green leases. So what could change to 2020? A big boost to the green agenda will come if energy prices continue to climb. While $20 oil is a distant memory, some commentators think that $100 oil will also be looked at nostalgically by the end of the decade. In this context, the ROI case for greener/more energy efficient buildings will be indisputable, and CFOs will rush to be a part of the sustainability movement. Improved building energy efficiency has been the most implemented green initiative in recent years as it is clearly measurable and has a direct impact on the bottom line of an organisation. However, in coming years the wider impact of green buildings will become increasingly important. According to a joint research by BCA and NUS, the payback period of retrofitting existing office buildings to a minimum Green Mark Gold status can be as short as around six years. Many occupiers in have global corporate social responsibility and environmental agendas. The real estate community will need to adjust their message and start selling the benefits of green buildings rather than just their features. And the benefits will increasingly have to be framed in terms of human resources, rather than mere technical performance. Increased productivity, happy workers, better collaboration, fewer sick days, higher retention, and superior recruitment all will need to be signalled as the impact of a green office. According to BCA, the number of green building projects in has grown from 17 in 2005 to about 1,600 in eight years. This translates to 47 million sqm of gross floor area (GFA), or 20% of s total GFA. is, thus, well on track to meet its goal of greening 80% of s building stock by : Asia's Global Gateway

17 Incentives and new legislation boosting the green agenda in BCA Green Mark Scheme launched Green building rating system by BCA S$20 million Green Mark Incentive Scheme for New Builldings S$20 million Green Mark Incentive Scheme for New Builldings Building Control Environmental Sustainability Regulations introduced in Building Control Act S$100 million Green Mark Incentive Scheme for Existing Buildings Green Mark Gross Floor Area Incentive Scheme S$5 million Green Mark Incentive Scheme: Design Prototype Building Control Environmental (Environmental Sustainability Sustainability Measures for Measure for Existing Existing Buildings Buildings) introduced Regulations Target to have at least 80% of buildings in to attain the BCA Green Mark Certified rating First East Asia Summit Environment Ministers Meeting: Environmentally sustainable cities All existing buidings owned by Government agencies to meet Green Mark GoldPlus Standard One thing that does not seem set to change is the way the impact of sustainable real estate measures are considered from a financial perspective. The tradition to quote gross rents, and not split out the service elements in any transparent way, is ingrained in the market. It is difficult to see what would trigger change here, meaning it will remain difficult to clearly quantify the impact of improved sustainability measures on costs. Finally, we may well see further legislation over the next few years for example, the an government could incentivise the costs of greening the office stock. However, this remains difficult to anticipate and it is unlikely that the government will implement legislation which will put at a competitively disadvantaged position so we might expect a light touch rather than a heavy hand. We will see the percentage of green buildings rise across towards 2020, accelerating building obsolescence of a large share of existing stock. BCA has in place a SGD 100 million Green Mark incentive scheme, in which aims to encourage developers and/or building owners to adopt retro fitting design, technologies and practices to achieve a significant improvement in building energy efficiency. Start the conversation Take wider view: From a financial baseline perspective, the value upside for corporates investing in highly sustainable office space is hard to prove. However, when expanding the sphere of impact the opportunities are vast, ranging from reduced operational costs, improved staff recruitment, retention and productivity to corporate brand enhancement. Futures proof your portfolio. Investors and developers will come under further pressure from new legislation as well as stakeholder and occupier demands. Although, at present, there is no significant evidence of a widespread willingness to pay top dollar for highly sustainable office space, non-green buildings are likely to lose in competitiveness. : Asia's Global Gateway 17

18 Offices 2020 OUTLOOK Where is headed? The office market is well placed to become a global gateway The size of the office market will see considerable growth as occupiers are attracted by s favourable business environment and incentives offered to relocate/expand their big regional or global HQs here. Crucial will be the development of a more dynamic marketplace which offers a better variety of prime stock in a wider number of locations. In, the Government s role in all of this will be fundamental. Looking forward, its initiatives are, indeed, supportive. A shining future for s office market will be further helped by Asia s continued growth and by large markets on its doorstep notably Malaysia and Indonesia. The importance of the office as a place will only increase going forward. Technical, cultural, organisational and sustainability trends will change the specifics of quality office and the way it will be used. Although these changes will largely be predictable, a strong inflow of MNCs and a step change towards higher quality growth will significantly accelerate the speed at which these trends take hold and form the office landscape. Fifty years of doing the right thing Since s independence, the Government has steered to the success story it is today. Any risk in the future is that applies a steady growth formula which focuses on safe rather than shining. In this scenario, the government cautiously steers real estate and avoids any speculation. What does the future hold? The most plausible future is that continues to be a highly competitive international office market. It has a pipeline of prime grade A stock and continues to develop world class infrastructure to suit. With well thought out government initiatives and a location at the heart of Asia pacific is well placed to strengthen its position as a global gateway. Strengths Government initiative led growth Future delivery of high quality office stock Development of, sector-specific, regional office districts Weaknesses Over-cautious land policy versus demand Potential lack of office product in some locations Regional centres will take time to become attractive, vibrant micro locations Opportunities Attracting regional and global HQs Shifting to higher value economy Integration with Asian Economic Community Threats Competing gateway cities in the region Uncertain global & local economic outlook 18 : Asia's Global Gateway

19 METHODOLOGY The methodology behind this campaign is based on a grounded theory approach developed by Barney Glaser and Anselm Strauss. Grounded theory method does not aim for a single-end truth, rather it is an evolutionary process to conceptualize into a useful format what is going on, by using empirical research from a variety of data sources. In essence, you look at the data and ask what is happening, rather than form a hypothesis that you then try to disprove. In this case, the empirical research consisted of several steps culminating in a series of workshops for clients from across six cities. First was examination of the existing Jones Lang LaSalle research on the office markets, to devise concept areas for further research. These areas were then discussed and refined into six questions through discussion with Asia Pacific research heads from some of the largest investment funds into offices. The research heads were extremely keen to understand what occupiers want and how the leasing process can provide a long-term relationship for both parties. The six questions were then posed to clients. In each of the six cities, we invited three corporate occupier clients and three clients representing the development process and the landlord community to a round-table discussion. These clients were joined by our Jones Lang LaSalle colleagues each city, representing a wide variety of functions and comprising of leasing, transaction management, capital markets, property management, work place strategy, facilities management and other senior management. The 12 participants in each city spent several hours debating the questions and presenting their alternative views. This written report is a step along the way in the process of discovering a shared view of the future of offices by clients and ourselves in six very different cities in Asia Pacific. ACKNOWLEDGEMENTS Thank you to the 40 organisations that participated in the Offices 2020 industry engagement process. Your contribution has been invaluable to this research project. If you would like to find out more and contribute your views, we would be delighted to hear from you. Please visit for more information. Join the conversation and add your views by visiting : Asia's Global Gateway 19

20 Jones Lang LaSalle office #39-00 Republic Plaza tel Jones Lang LaSalle Property Consultants Pte Ltd CEA Licence No. L E COPYRIGHT JONES LANG LASALLE 2014 All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle. The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome, and we draw your attention to this factor.