Opportune time to revisit office project as rents recover

PLANS to redevelop Market Street Car Park into an office building could be back on track, now that its owner CapitaCommercial Trust (CCT) has obtained provisional permission for the project.

The Urban Redevelopment Authority (URA) gave the tentative nod in November last year. The new office building could have a gross floor area of around 854,400 square feet. There are no details on the number of car park lots that it may have.

Market Street Car Park, at 146 Market Street, has 704 car park lots. It also has retail and food and beverage outlets on the ground floor. Its lease expires in 2073. A number of industry watchers have been expecting CCT to trigger redevelopment plans for Market Street Car Park again, as it looks for ways to deploy capital this year.

Back in January 2008, the commercial real estate investment trust (Reit) said that it had gotten outline planning permission (OPP) to redevelop Market Street Car Park into a Grade A office tower.

The authorities granted the OPP on two conditions: there would be no extension of the present lease, and CCT would have to pay a development premium equal to 100 per cent of the enhancement in land value. CCT estimated then that the total project cost would be $1 billion to $1.5 billion.

The global financial crisis foiled CCT’s plans. In January 2009, it said that it would drop the project because of its significant size, the high redevelopment cost, an uncertain market outlook and tight credit conditions.

CCT later divested two office buildings and prepaid a secured term loan. With the recovery of the office market, and an investment capacity of up to $1.6 billion, it is back looking for investment opportunities this year.

Several analysts have flagged the redevelopment of Market Street Car Park as a possible venture, given the difficulties of making yield accretive acquisitions in today’s market.

Lower construction costs – compared with levels before the financial crisis – could also make the project more attractive.

‘We continue to expect the redevelopment of Market Street into a Grade A office building,’ said Standard Chartered research analysts in a Jan 20 report. ‘We calculate that the project is likely to cost $1-1.07 billion, including $500-600 million of development charges.’

CCT might have to undertake the redevelopment with a joint venture partner as development projects cannot exceed 10 per cent of a Reit’s asset size, said Macquarie Equities Research analysts in a Jan 19 note.

Cushman & Wakefield Singapore vice-chairman Donald Han said that he believes that it is an opportune time to revisit the project. Office rents have been recovering, and if redevelopment takes place in the next 12 months, the new building could be ready in 2013 or 2014 when the office market would be in ‘full swing’, he said.

However, ‘a lot of the new buildings are now being built with tighter car park ratios’, he said, adding that the potential removal of car park lots would affect the parking situation in the central business district.

Source: Business Times, 29 Jan 2011

THE transformation of part of Paya Lebar into a major city fringe commercial hub is a step closer after the first site in the area was launched for sale.

The land parcel at the junction of Paya Lebar Road and Eunos Road 8 is to boast mainly offices.

The new hub is called Paya Lebar Central. The Government aims to turn the area into a vibrant, pedestrian-friendly commercial hub including retail outlets and hotels, and attractive open spaces.

Overall, about 12 ha will be converted to commercial use, generating potential floor space of more than 5,381,955 sq ft.

The Urban Redevelopment Authority said the district will cater to businesses that do not need to operate within the city centre. It could become a sizeable fringe commercial centre.

The site now being offered is next to the Paya Lebar interchange station, which serves the Circle and East-West MRT lines.

The 159,866 sq ft commercial site sits in the heart of the district, and is just a 10-minute drive to the CBD. The site will be able to contain a maximum gross floor area (GFA) of 671,453 sq ft and can be built to a height of 64m above mean sea level.

At least 80 per cent of the GFA will need to be allocated to office use. The rest can also be used for other activities permitted under the commercial zoning. The tender will close on April 21.

Mr Ong Kah Seng, Cushman & Wakefield senior manager of Asia-Pacific research, anticipates good interest from developers, including those who traditionally stick to residential development.

He said they may ‘wish to diversify their development and investment activities, as the office sector seems to be more stable in growth and requires less necessary government intervention to ensure supply-demand balance’.

The recent focus has been on prime offices, said Mr Ong. But the completion of other major suburban commercial sites, like Jurong Gateway, will see the emergence of a new tier of suburban offices in the next few years.

Source: Straits Times, 28 Jan 2011

57% jump in commercial real estate transactions last year with sales more than doubling to $2.5 billion
INVESTORS streamed back into the commercial property market last year on the back of the economic rebound and the improving rents it brought.

A new report said the number of transactions of strata-titled commercial real estate – shops, shophouses and offices – jumped 57 per cent to 1,219 last year over a muted 2009.

The total value of sales more than doubled to $2.5 billion.

But the robust figures are still well below the record 1,849 transactions totalling $8.7 billion that took place in the boom year of 2007.

Experts say investors favour strata-titled units because they are a relatively cheap way to enter the commercial market and are not affected by the Government’s recent cooling measures. Estimated rental yields of between 4 per cent and 6 per cent – trumping the residential sector’s 3 per cent – have spurred interest as well.

Offices were the star performer last year with transactions up 85 per cent over 2009 to 387 while their total value rocketed 165 per cent to $850 million.

Knight Frank’s data showed that most transactions were between $1 million and $2 million.

These comprised units from $1,500 to $2,000 per sq ft (psf) and typically less than 1,000 sq ft in buildings such as The Central and International Plaza, the report noted.

Ms Mary Sai, Knight Frank’s executive director and head of auction (commercial), said the number of units sold to foreigners last year jumped 130 per cent.

‘(This is) not surprising as the number of foreigners in Singapore has increased over the year and residential prices have also achieved new record highs,’ she said.

Strata-titled shops also performed well with the value of sales up 92 per cent to $533 million while transaction numbers surged 58 per cent to 484.

Most were priced under $1 million and are the sort of unit found in buildings like Bukit Timah Shopping Centre, People’s Park Complex and Golden Mile Complex.

But sales of units between $1 million and $1.9 million recorded the fastest growth.

These shops are typically found in central areas with plenty of passers-by or in malls like Sim Lim Square or Holland Road Shopping Centre that have affluent neighbourhoods within striking distance.

Shophouses were also popular last year with 348 transactions worth $1.1 billion, up from 262 sales totalling $611 million in 2009.

Most sales were between $1 million and $5 million and in areas such as Boat Quay, Chinatown and Tanjong Pagar.

‘Shophouses in these areas are popular because of their limited supply, good lettability, strong demand from food and beverage tenants and potential capital appreciation for freehold properties,’ said Ms Sai.

Joo Chiat Road was the most popular street for shophouses with 22 transactions, while Duxton Road and Geylang Road also attracted buyers.

Property developer Far East Organization said industrial properties and offices are attracting growing interest as they are exempt from the cooling measures.

Knight Frank said the outlook remains bright thanks to the sound economy while the new residential cooling measures are likely to continue diverting investors to commercial units.

Source: Straits Times, 28 Jan 2011

Expected price tag is $110-$115m, says DTZ

(SINGAPORE) North Bridge Commercial Complex is up for grabs, with an expected price tag of $110-$115 million, said DTZ, the marketing agent for the sale.

Located along North Bridge Road, the freehold property sits on a land area of 1,079.1 sq m (11,615 sq ft). The site is zoned for commercial use, has a plot ratio of 4.2 and total gross floor area of 4,532.2 sq m (48,784 sq ft).

Based on the sale price expectations, this translates into a per square foot per plot ratio cost of $2,255-$2,357.

According to DTZ, the plot has a buildable height of up to six storeys. The development currently sitting on the site is a six-storey commercial block with an existing gross floor area of 6,188.67 sq m (66,614 sq ft).

DTZ’s senior director for investment advisory services and auction Shaun Poh said of the site: ‘There has been no similar property offering in the vicinity recently and we expect the property to attract keen interest from investors and developers.’

He added that the plot’s central location, coupled with its proximity to the Bugis and City Hall MRT stations and its prominent frontage, means the property has the potential to be revamped into a boutique office. It can also be turned into a retail development, with the opportunity for individual unit sales, said Mr Poh.

‘Shop units at The Bencoolen have recently changed hands at $3,500 to $5,300 psf (per square foot) and at Sim Lim Square up to $9,000 psf,’ he noted, adding that other possible development options for the site include a hotel, subject to planning approval.

The site is also close to shopping malls such as Bugis Junction and Raffles City, and hotels like the Inter-Continental Hotel and Raffles Hotel.

For now, entities that own more than 90 per cent of the total strata area and share values of the complex have given their consent to the collective sale. They include private commercial school operator ERC Holdings, which bought 90 per cent of the complex for $46 million in 2009.

The sale is being conducted through a tender exercise, which will close on March 3 at 3pm.

Source: Business Times, 25 Jan 2011

Total value of commercial transactions in 2010 rises 104%

(SINGAPORE) The buoyant economy, strong domestic demand and rental uptrend has translated to robust activities in the commercial property sector last year.

The strata office sector led the jump in commercial transactions in 2010, both in deal numbers and values, according to a new report by property agency Knight Frank.

The total value of commercial transactions last year surged 104 per cent on the back of a 57 per cent jump in the number of these transactions.

‘The pick-up in commercial resale activity was driven by factors such as the recovery in the economy, strong domestic demand, improving rents and restored local and foreign investor confidence in the market,’ Knight Frank says in the report.

Strata office units emerged as the star player, with particular interest seen in the centrally located and high-value strata offices.

Some 387 office properties changed hands last year, compared with 209 in 2009, with the value of these transactions surging by 165 per cent to $850.06 million.

The highest number of transactions in the strata office segment fell in the $1 million to $2 million price bracket, comprising units in The Central and International Plaza.

The transacted units were priced in the range of $1,500 to $2,000 per square foot (psf) and are typically sized at just below 1,000 sq ft. Knight Frank noted that units in these buildings were in demand for their centralised location, proximity to the MRT station and affordable quantum.

There was strong foreign interest in strata office units, with the number of foreign purchases surging by 130 per cent from a year ago.

‘Due to the increase in office rentals, investors have been buying strata office units for owner occupation to protect themselves from the volatile office rental cycle,’ Knight Frank said.

As for the strata shops segment, the number of transactions rose 58 per cent to 484 deals and the combined value of these transactions jumped 92 per cent to $532.94 million.

The majority of these transactions came under the below $500,000 and the $500,000 to $1 million categories – which either offer exposure to high pedestrian traffic and good access, potential growth areas, affordable quantum price or attractive rental yields. These could found in Bukit Timah Shopping Centre, People’s Park Complex and Golden Mile Complex.

There were also strong activities in the new mixed developments such as Viva Vista in South Buona Vista and Peninsula Plaza, Knight Frank pointed out.

Compared to the strata shops and strata offices, shophouse transactions were less active, given the limited supply and higher investment quantum.

The bulk of shophouse transactions were found in the $1 million to $1.99 million and the $2 million to $4.99 million price brackets, mainly in District 1 and 2.

‘Shophouses in these areas are popular because of limited supply, good lettability, strong demand from F&B tenants and potential capital appreciation for the freehold properties,’ Knight Frank said.

Source: Business Times, 25 Jan 2011

Family-owned concern said to have bought the Jalan Pemimpin property

SIN Cheong Building, an ageing six-storey freehold flatted factory building at Jalan Pemimpin, is changing hands for about $36 million.

A Singapore family- owned concern is said to have inked a deal to buy the property and is likely to tap the redevelopment potential of the asset, which is more than 30 years old.

The purchase price reflects a unit land price of about $343 per square foot of potential gross floor area. Analysts estimate the breakeven cost for a new strata industrial project at about $600 per square foot.

Nearby, Ho Bee is expected to launch more than 100 strata industrial units at its freehold project at 1 Pemimpin Drive in the next few months.

The units, which will have an average size of about 1,100 sq ft, will be priced at about $700-$800 psf.

Sin Cheong Building has a land area of 44,001 sq ft and is zoned for Business 1 use with a 2.5 gross plot ratio under Master Plan 2008.

The property can be redeveloped into a new project with a gross floor area (GFA) of about 110,001 sq ft – exceeding the existing property’s GFA of about 80,000 sq ft.

HSR brokered the sale of Sin Cheong Building through a tender exercise, which closed on Jan 20, attracting seven bidders as well as a handful of other parties that submitted expressions of interest.

‘The property attracted keen interest from mainboard-listed developers, building contractors, family-owned companies as well as private funds,’ said HSR’s head of investment sales Jeffrey Goh.

The building was sold by Sin Cheong Containers Manufacturing Company Pte Ltd, which is involved in the production of tin cans and containers. The company used to occupy the Jalan Pemimpin property but moved out many years ago to Gul Drive in the Jurong area.

The Jalan Pemimpin building is let to about 41 tenants, with a resulting occupancy rate of about 75-80 per cent.

The leases are said to expire within a year, paving the way for the new owner to redevelop the site.

‘There seems to be a shift in investors’ interest towards industrial properties as prices in this sector have not seen the same rate of increase compared with the residential sector,’ said Mr Goh.

Other property agents also say that some wholesale property investors are switching their focus from the residential sector to the industrial segment. And the onset of the Jan 13 measures to cool the private housing market has led some investors that traditionally invest in the residential or office markets to make queries about putting their money in industrial buildings, said DTZ senior director of investment advisory services, Shaun Poh.

Source: Business Times, 24 Jan 2011

SHOPPERS in Clementi can look forward to having a new department store next year, with BHG opening its fifth Singapore outlet at The Clementi Mall.

The retailer will occupy over 11,000 sq ft on the third floor of the six-storey mall. The store will open ‘within the next couple of months’, said Singapore Press Holdings (SPH) yesterday.

SPH’s unit Times Properties has a 60 per cent stake in CM Domain, the joint venture that owns the mall, with NTUC Income and NTUC FairPrice holding the rest.

The Clementi Mall is on track to obtain its first temporary occupancy permit early next month and its second in mid-March, according to SPH.

So far, 85 per cent of the mall’s retail space has been taken up and the rest is likely to be occupied soon, said CM Domain general manager Linda Kwan.

‘We are getting many positive responses and interest from retailers for shop space,’ she said. ‘We expect full tenancy commitment when the mall officially opens in April 2011.’

First to open at the mall will be the 20,000 sq ft FairPrice Finest supermarket and a number of eateries in the basement and on the first level, which will start doing business from the middle of next month.

The eateries will include Old Chang Kee, Bee Cheng Hiang, Ho Kee Pau, Each-A-Cup, BreadTalk/ToastBox, Four Seasons Durians, Yami Yogurt and Bengawan Solo.

A duplex McDonald’s outlet that takes up 5,000 sq ft is scheduled to open by Chinese New Year, SPH said. It will join fast-food joints including Ajisen Ramen, Burger King, KFC and Long John Silver’s.

SPH also announced the names of other tenants at the mall yesterday, including electronics retailers Challenger and Best Denki on the fourth level.

These, together with the 10,000 sq ft Foodfare food court on the fourth level, and the 20,000 sq ft Clementi Public Library on the fifth level, will open in stages during the first half of next year.

The Clementi Mall offers about 190,000 sq ft of retail space in total, including a basement shopping level and a basement carpark with about 160 spaces.

When completed, it will have a direct link to Clementi MRT station on the third level and Clementi bus interchange on the first level.

Source: Straits Times, 31 Dec 2010

CHINATOWN Point’s ageing facade and dated interior are set to undergo a $75 million makeover that will give it a modern Chinese-themed ambience.

The facelift – which will be carried out in phases and completed by June 2013 – was given the go-ahead after a unanimous vote by subsidiary proprietors at the development’s annual general meeting yesterday.

Mr Pua Seck Guan, chief executive of Perennial Real Estate, which acquired a large portion of Chinatown Point in October as part of a consortium that includes German fund manager SEB, NTUC FairPrice and Singapore Press Holdings, said the project could represent one of the most major upgradings of a mixed-use strata-titled development here.

‘It’s exciting yet challenging… When they first built this building about 20 years ago, there was no MRT. But in the last few years, train lines have come to the doorstep of this building, and that’s where we see the potential of this project,’ he added.

Chinese elements, such as paper fan and chopstick-inspired designs, will blend with high-tech plasma screens and advertising panels on the mall’s exterior facade, Perennial said.

The proposed works to the retail mall and 25-storey office block will be carried out in phases, starting in the second quarter of next year, and the mall will remain open throughout the upgrade.

The revitalised site is expected to accommodate trades closely associated with the Chinatown area and feature travel agencies, traditional goldsmiths and jewellers, Chinese food and delicacies, Chinese medical halls, Chinese arts and crafts, and electronics.

‘We want to capture the opportunity to create a mall which has a bit of character. Already, it has its own catchment… We just need to assemble them into a stronger concept, offer a better environment and a more professional marketing and management approach,’ Mr Pua said.

FairPrice is expected to be a supermarket anchor tenant in the basement, while the BreadTalk Group has expressed strong interest in introducing concepts such as its Food Republic foodcourt and Taiwanese Din Tai Fung restaurant.

Other improvement works will see the mall’s basement connecting directly to Chinatown MRT station, and about 20,000 sq ft dedicated to civic and community institutions, with an independent Chinese library being a possible candidate.

The rejuvenation will see the mall’s net lettable area increase by 18 per cent to 205,000 sq ft.

And average rents, currently less than $10 per sq ft (psf) per month, are likely to increase to an average of $15 psf per month when the rejuvenation is complete, Mr Pua said.

Over at the office tower, the lobbies, lifts, toilets and amenities will also be upgraded.

Current retail tenants welcome the planned improvements, but some are concerned about the expected rent rises.

A tenant who wanted to be known only as Mrs Tan, who has operated Art Gallery 3 at Chinatown Point for almost 20 years, hopes the number of shoppers will increase after the enhancement works to make up for any increase in rent.

‘Tourists know that they should come here to find Chinese handicrafts… I hope that the handicraft centre and the character of the place will be kept even after the renovations. If they do it well, hopefully we’ll see more customers coming in,’ she said.

Source: Straits Times, 31 Dec 2010

THE 20-year old Chinatown Point retail and office complex is set to get a new lease of life after a planned $75 million major asset enhancement programme.

The consortium of investors that bought 283 strata-titled retail units and four office units in the property – which works out to over 65 per cent of the entire complex – in July 2010 will fork out the money in a bid to rejuvenate the mall and boost rental income.

The consortium, which was put together by former CapitaLand veteran Pua Seck Guan’s Perennial Real Estate group, paid $250 million for City Developments’ entire stake in Chinatown Point.

Members of the consortium include German fund manager SEB, NTUC FairPrice Co-operative and Singapore Press Holdings.

‘The revitalised Chinatown Point retail mall, with its enlarged footprint, improved layout and extensive offerings, is expected become a landmark for locals and tourists in the bustling Chinatown precinct,’ said Mr Pua, who is Perennial’s chief executive.

One of Perennial’s units, Perennial (Singapore) Retail Management, is the retail manager of the partners’ 65 per cent stake.

Perennial’s plan will allow owners of the other office units to benefit at no cost from upgrading works. The office tower’s common amenities, car park facilities and building’s facade will all be improved.

All owners will also get to reduce their annual contributions to the management corporation strata title (MCST) management fund by over 30 per cent and enjoy ‘significant’ savings to the MCST sinking fund, Perennial said.

Shoppers will also benefit from the asset enhancement as changes will be made to improve the overall layout of the retail mall. The flooring, ceiling, light fixtures and toilets will also be upgraded to provide shoppers with a modern Chinese-themed ambience to blend in with its unique location.

Basement 1 of the retail mall will also be direct linked to the Chinatown MRT station.

After the revamp, the average rent at the retail mall is expected to increase to around $15 per square foot per month (psf pm), from less than $10 psf pm now. The net lettable area will also climb from about 174,000 sq ft now to around 205,000 sq ft – an increase of 18 per cent.

The enhancement work is expected to start in the second quarter of 2011 and be completed by Q2 2013. As the proposed works will be carried out in phases, Chinatown Point’s retail mall will remain operational throughout.

Mr Pua hopes that the asset enhancement programme at Chinatown Point will set the stage for many other strata-titled mixed-use developments in Singapore, where the value of the real estate can be increased through the execution of well-planned asset enhancement programmes.

Source: Business Times, 31 Dec 2010

THE pace of office rental growth gained momentum in the fourth quarter of 2010, according to a new report from DTZ.

The firm said that average prime gross rents in Raffles Place rose 7.1 per cent quarter-on-quarter in Q4 2010 to $9 per square foot per month. This reflects an increasing rate of rental growth from Q3 2010 when rental values rose 6.3 per cent.

For the whole of 2010, average prime gross rents in Raffles Place increased by 13.9 per cent, DTZ said.

The net absorption of office space for the whole of 2010 is estimated to be about 4.4 million sq ft, although this includes about 1.7 million sq ft of space that was pre-committed.

Excluding the pre-committed space, which is being fitted out, the net absorption will be 2.7 million sq ft and the occupancy rate will be 92.7 per cent, DTZ said.

‘Despite earlier concerns about the hollowing out effect when occupiers upgrade to new buildings, we notice that the vacated space is being taken up readily by existing tenants wanting to expand, or occupiers from other buildings,’ said Angela Tan, DTZ’s executive director for occupational and development markets.

But downward pressure on the occupancy rates of older secondary buildings can be expected, as tenants move to the better-quality buildings that are being vacated, she added.

An estimated 8.2 million sq ft of net lettable space could be available between 2011 and 2015, DTZ said. This includes government land sales sites that have been awarded to developers but have not received planning approval.

The bulk of the new supply, about three million sq ft, will be completed next year. New CBD office completions in 2011 include Asia Square Tower 1, Ocean Financial Centre, OUE Bayfront and One Raffles Place Tower 2.

DTZ expects rents to move up at a slower rate next year until there are clearer signs of a recovery in the US and Europe.

There is still holding back on widespread expansion, particularly among occupiers whose headquarters are based in these major economic regions, the firm noted.

Source: Business Times, 30 Dec 2010