Some one million square feet of office space in the Central Business District (CBD) is likely to be converted into at least 1,000 private homes over the next three years.

Property analysts say that with the Marina Bay financial district now taking distinct shape, developers are looking to recycle older office buildings in the current CBD in anticipation of business activity moving to the new hotspot.

Redevelopment plans are also motivated by climbing luxury home prices which contrast sharply with falling office rents.

City Developments said at its results briefing last Thursday that it was looking to see if it could convert any of its office buildings in the ‘old’ CBD to residential use.

‘It is a question of demand,’ said CityDev chairman Kwek Leng Beng at the briefing.

CityDev’s parent company Hong Leong Holdings is already redeveloping 76 Shenton Way, which has a net lettable area (NLA) of about 92,700 square feet of office space.

The 202-unit residential project due to come up on the site is likely to be launched within the next few weeks.

Other similar conversions in the pipeline include UIC Building on Shenton Way and Starhub Centre on Cuppage Road.

‘With the theme of working, living and playing in 21st century Singapore fast becoming a lifestyle reality, we see great potential in quality residential developments in the core central region,’ said a Hong Leong spokesman.

The trend is not new. Developers were looking to convert selected office space into residential use as far back as 2007. City- Dev, for example, launched its One Shenton residential project in January 2007, converting an office block into residential space. Since then, 316 apartments in the 341-unit project have been sold, with many going for more than $2,000 per sq ft (psf).

But other such plans were put on hold when in May 2007, fearing a shortage of office space, the Urban Redevelopment Authority (URA) called a halt to all conversion of offices in the central area to curb further depletion of existing stock.

The ban was lifted in late 2008 as fears of an office space oversupply emerged.

Knight Frank chairman Tan Tiong Cheng said that with the Marina Bay Sands integrated resort (IR) now ready to open its doors and the entire Marina Bay area taking shape, developers are now taking another look at their buildings located in the current CBD.

‘It is the government’s intention to have a new CBD in Marina South. So there is concern that some of the older office buildings may not be relevant to future needs,’ said Mr Tan. ‘Office rents have also dipped, so it is a good time to look at redeveloping some of these buildings now that the ban has been lifted.’

Elsewhere on Shenton Way, UIC has received permission to redevelop UIC Building into a mostly residential project. UIC’s board says it is still assessing all alternatives to ensure the best use for the building. But sources told BT that the conversion could start some time this year. The property has close to 400,000 sq ft of office space.

Office real estate investment trust (Reit) CapitaCommercial Trust also said in January that it is looking at redeveloping Starhub Centre on Cuppage Road into a residential and commercial project with up to 80 per cent of the gross floor area devoted to residential use. The property currently has an NLA of about 280,000 sq ft and analysts estimate that 200-300 upmarket homes could be built on the site.

Other office properties that could be converted (either fully or partly) into private homes include KOP Capital’s The Spazio on Cecil Street, and three buildings owned by Fission Group and Yi Kai Group – VTB Building on Robinson Road, and Aviva Building and Cecil House on Cecil Street.

In all, around one million square feet of office space could be removed from the market and transformed into upmarket homes.

City living has, in recent years, become more popular and luxury home prices are expected to climb this year. UBS Investment Research, for example, expects luxury home prices to rise 40 per cent in 2010 to reach $4,000 psf and maintains that prime home prices (in districts 9, 10, 11) could reach 2007 levels this year.

Falling office rents and an upcoming glut of office supply also means that office rents are widely expected to continue falling. Property firm Savills expects a 20-25 per cent fall in Grade A office rents in Singapore this year.

But Knight Frank’s Mr Tan says that not all office buildings in the present CBD can be converted into homes.

‘City living is only attractive if you have a view of the sea or you have some kind of a city vista,’ he said.

The conversion of some office space into residential units will lend support to rents, analysts said.

UBS Investment Research said in late January that it now expects over one million sq ft of office space to be removed in 2010 and 2011, instead of the 550,000 sq ft expected earlier.

‘As a result, we upgrade our prime office rents in 2010-2013 by 5 per cent,’ said UBS analyst Regina Lim. ‘We now expect prime office rent of $8.70 psf per month by end-2010 and $9.70 psf per month by end-2011.’

Source: Business Times, 1 Mar 2010

High-end properties are revisiting the $3,000 psf price range. In the Marina Bay area, the 1,111-unit The Sail @ Marina Bay steals the spotlight once again with six transactions in the week of Jan 26 to Feb 5; four above $2,000 psf while two crossed the $3,000 psf level. While Sentosa Cove and Keppel Bay are abuzz over the opening of Resorts World at Sentosa, excitement is also mounting at Marina Bay as Las Vegas Sands announced last Wednesday it will open the first phase of its US$5.5 billion ($7.8 billion) Marina Bay Sands integrated resort with casino on April 27, and the second phase on June 23.

The two resale transactions at The Sail at above $3,000 psf were for two neighbouring units on the 58th floor of the 63-storey Tower 2. According to a Feb 1 caveat lodged with URA Realis, an 883 sq ft two-bedroom unit was sold for $2.69 million or $3,048 psf. The previous owner purchased the unit when Tower 2 was launched in late-2004 for a mere $961,830 ($1,090 psf), hence recognising capital gains of close to 180% in five years.

The other sale was for a 936 sq ft two-bedroom apartment that went for $3 million ($3,204 psf). The previous owner recognised capital gains of 200%, as he had purchased the unit at launch for $1,065 psf or $997,216.

Developed jointly by giant listed property developer City Developments Ltd and AIG Real Estate, Tower 2 was launched in October 2004 and completed in mid-2008, while the 70-storey Tower 1 was launched in 2005 and completed in 4Q2008.

The last time a unit at The Sail crossed the $3,000 psf level was when a 60th-floor, 1,033 sq ft unit in Tower 2 changed hands in a sub-sale for $3.5 million ($3,387 psf), according to an April 4, 2008 caveat. That is still the record in terms of psf price. The previous owner of the apartment, however, had purchased the unit in a sub-sale for $2,999 psf, according to an Aug 6, 2007 caveat, and only recognised some 13% in gains.

At the peak of the most recent property boom from August to October 2007, there were five sub-sales at $3,000 to $3,300 psf at The Sail. Perhaps we will see more transactions at such price levels in the coming months as the opening of the IR gets closer.

The other four transactions were at $2,080 to $2,600 psf (see table). According to a Feb 2 caveat, an 861 sq ft, Marina Bay-facing unit on the 39th floor of Tower 1 changed hands for over $2 million ($2,367 psf). The previous owner did a quick flip; according to an earlier caveat, the unit last changed hands in August at $2,100 psf. Hence, he recognised a gain of 12.7% in about six months. The first owner purchased the property in November 2005 at the launch for just over $1 million ($1,174 psf). His capital gain over a four-year period was close to 79%.

While The Sail is the most actively traded project at Marina Bay, Icon earns that title at Tanjong Pagar. Launched in 2003 just after the SARS outbreak, the 646-unit project by Far East Organization was completed in 2007. From end-January to early February, there were three resale transactions at Icon at $1,449 to $1,600 psf.

One was for a 915 sq ft unit on the 25th floor of the 46-storey building, which changed hands for $1.464 million ($1,600 psf), according to a Feb 1 caveat. The previous owner purchased the unit three years ago, according to a February 2007 caveat, for $896,000 ($979 psf), hence seeing a gain of 63.4%.

A 13th floor, 657 sq ft one-bedroom apartment went for $1,599 psf ($1.05 million). This is the third time the property has changed hands in the secondary market. The previous owner purchased the unit in February 2007 for a prosperous amount of $888,888 ($1,354 psf), hence recognising an 18% gain. However, the owner before that saw an 82% capital appreciation in just over a year as he had purchased it for just $488,000 ($743 psf), according to a December 2005 caveat. The very first owner purchased the unit at launch in 2003 for $454,600 ($692 psf).

With Far East Organization having started private previews of the 280-unit, 62-storey Altez right next door to Icon, interest has once again returned to the area. Since the private previews started on Feb 10, 140 out of 155 units released were sold at an average of $1,850 psf. Not surprisingly, asking prices at Icon have also increased in tandem.

In the Tanjong Pagar area, Allgreen Properties is expected to launch its project (Skysuite) next to Altez in 2Q, and market speculation is that Hong Leong Holdings will likely launch 76 Shenton Way, which will be redeveloped into a high-end condominium tower at prices in the $2,000 psf range.

Source: The Edge, 1 Mar 2010