Tight supply puts pressure on S’pore prime office rent

TIGHT supply of prime office space in Singapore continues to push up rentals, with latest figures from Jones Lang LaSalle (JLL) showing an increase of 13.5 per cent quarter-on-quarter (q-o-q) in Q2 2006, and 44.4 per cent year-on-year (y-o-y).

A report by JLL also shows that capital values have increased by 10 per cent q-o-q and 23.5 per cent y-o-y.

Looking at prime office space in regional cities, JLL head of research (Asia Pacific), Jane Murray, said that the lack of supply ‘hampered’ leasing activity in most cities, with Singapore, Tokyo and to a lesser extent Shanghai seeing a majority of newly completed projects pre-committed.

Indeed, Singapore’s prime office space, which centres on Raffles Place and Shenton Way, registered the highest q-o-q rental increase in the region, followed by Hong Kong (Central) and Mumbai (CBD).

Dr Murray also said that ’some occupiers are willing to seek alternative accommodation outside the core districts given the surge in rents’.

In Singapore, she noted that rents in the secondary business districts (SBD) are also catching up with Raffles Place rents, with demand coming from banks and financial institutions that are undertaking expansion plans. But she added: ‘As these two markets are distinct in nature, we foresee no impact on one another.’

Vacancy rates have also contracted with latest q-o-q figures registering a further drop of 1.7 per cent. Dr Murray added: ‘Given One Raffles Quay is close to full occupancy, vacancy levels should continue to contract in line with the positive outlook of the economy and the growth of business and financial services.’

Investor interest remained centred on Japan, China, Korea and Singapore. ‘With rental growth still strong and the anticipated conclusion of the Federal Reserve’s tightening policy, we expect more investment activity in the months ahead,’ she added.

In Hong Kong (Central), JLL reported that the latest q-o-q increase of 8.9 per cent marks the 11th consecutive quarter of growth, the longest streak in 20 years. Interestingly, Dr Murray also noted that in the core markets of Delhi, Mumbai, Bangalore and Chennai, rents are reaching the levels of Singapore, ‘despite the lack of professional property management on the premises’.

The current Raffles Place rents command about US$431 psm per annum (on a net effective basis). In Delhi and Mumbai’s CBD, rents are US$491 and US$508 psm per annum, respectively.

Source : Business Times – 8 Aug 2006

SingTel set to launch 71 Robinson Rd tender

SINGAPORE Telecom is getting ready to launch a tender for 71 Robinson Road, which now houses Robinson Road Post Office and was formerly known as Crosby House, sources say.

And although SingTel reportedly secured provisional permission last year to redevelop the property into a slightly over 50 storey project comprising more than 300 apartments, six levels of car parks and commercial use on street level, market watchers now think potential buyers could consider redeveloping the site into a full commercial project instead.

The latter would enable a developer to ride on rising office rents amid tightening supply.

Analysts suggest the total land cost for the site could be about $110 million, reflecting a unit land price of about $400 psf of potential gross floor area.

These figures include the purchase cost payable to SingTel plus payments to the state for intensifying the use of the site and topping up the lease from the remaining 45 years to the original 99 years.

The site is now zoned for commercial use with an 11.2 plot ratio under Master Plan 2003.

URA’s provisional permission for a residential scheme with commercial use on ground floor was based on the same plot ratio – but is subject to the site being rezoned from commercial use to residential with commercial use on the first storey.

Based on an 11.2 plot ratio, a development can be built up to a gross floor area of 274,746 sq ft – reflecting a significant enhancement from the existing 99,383 sq ft.

BT understands that SingTel has appointed a property consultant to handle the sale of the leasehold property.

Sources tip the appointee to be Credo Real Estate, which handled the sale of SingTel’s Old Holland Road and West Coast road sites. Credo declined to comment yesterday.

71 Robinson Road has a land area of 24,531 sq ft. SingTel has been divesting non-core property to redeploy resources to its core telco business.

In February, SingTel sold the freehold former telephone exchange at 859 Old Holland Road for $30 million or $513 psf of net land area to a company whose ultimate shareholders include Indonesia’s Tjugito family, linked to the Eagle Indo Group.

The new owner plans a cluster housing project.

SingTel has also sold a leasehold site at West Coast Road to Frasers Centrepoint at a price that reflects an all-in land cost of about $220 psf per plot ratio inclusive of payments to state.

Another property that SingTel divested this year is a prime leasehold site at Hillcrest Road, sold to MCL Land in May for $102.5 million. MCL plans a cluster housing development.

Source : Business Times – 27 Jul 2006

CapitaLand is top contender to run Ang Mo Kio mall

CAPITALAND is poised to gain a monopoly of malls in the Ang Mo Kio-Bishan area. BT understands that the property giant’s retail division is the front-runner to win the contract to manage the upcoming shopping centre in Ang Mo Kio central, which is expected to open in March next year.

Together with Junction 8 in Bishan, CapitaLand will operate two malls within one train stop from each other.

The mall in Ang Mo Kio, now under construction, is being jointly developed by the Singapore Labour Foundation (SLF), NTUC Income and NTUC FairPrice.

SLF acquired the site for the mall from the government at a reduced rate in 2002 after bypassing the usual bidding process – a move that drew fire from developers and retailers.

In response, the Singapore Land Authority, the Urban Redevelopment Authority and the SLF explained that the land was directly sold to the SLF at a ‘fair market value’ because 40 per cent of the development would comprise public and non-institutional uses.

SLF had originally planned to build a 31-storey condominium on the 2.57 ha site, alongside an office block and a new air-conditioned bus interchange. But in 2004, it said that it would construct ‘an integrated shopping mall-cum-bus interchange’ instead.

The project is now on the verge of completion. The mall will have a gross floor area of 48,250 sq m, and the net lettable area is estimated to be 32,500 sq m.

Construction is due to be completed by the first quarter of next year, and most of the shops will be open by March, said Knight Frank property consultancy. The grand opening is scheduled for May.

The project will be managed by SLF Management Services, which together with Knight Frank is now looking for tenants. Knight Frank confirmed that the mall is on the lookout for a professional mall management company.

Whoever runs the mall will be restricted by conditions that came with the subsidised price tag.

At least 50 per cent of space has to be let out to the SLF, the National Trades Union Congress (NTUC) or their affiliates and related organisations, private companies majority-owned either individually or jointly by SLF, NTUC, its affiliates and other related organisations, other non-profit institutional users, and users of the bus interchange.

The new mall is expected to face stiff competition from Junction 8, which has established itself as the suburban mall of choice for shoppers in the area.

To overcome all this, the new mall will be marketing itself differently – as a place to cater to everyone in the family. There will be a ‘learning hub’, which could take up an entire floor. And another floor could be devoted to entertainment, with plans under way for an eight-screen cineplex.

Knight Frank also hopes to line up an exciting retail landscape for residents of Ang Mo Kio, despite being able to devote only half of the mall to retail.

Retail group RSH (formerly known as Royal Sporting House), which distributes labels such as Mango and Bebe in Singapore, and Esprit could both open stores within the shopping centre.

NTUC’s FairPrice will be one of the anchor tenants, operating a 7,110 sq m hypermarket.

Source : Business Times – 17 Jul 2006

Grade A office vacancy rate dips to 2.7% in Q2: CBRE

REFLECTING tightening office supply in Singapore, the vacancy rate for Grade A office buildings dipped further to 2.7 per cent in the second quarter – the lowest level in about five years, according to CB Richard Ellis (CBRE).

The figure in the first three months of this year was 4.9 per cent.

CBRE also said yesterday that the vacancy rate in the core central business district (CBD) – Shenton Way, Raffles Place and Marina Centre – fell from 9.5 per cent in the first quarter to 7.1 per cent in Q2. ‘The improvement in overall occupancy levels was led by strong leasing momentum in both prime and Grade A office buildings,’ it added.

Traditional office sub-markets such as Marina Centre, Shenton Way, City Hall and Orchard Road all enjoyed single-digit vacancies in the April-June quarter. Quality space outside the CBD was also highly sought after, with Tampines and Jurong East regional centres, as well as the Thomson/Novena locations, reporting vacancies of around 2 per cent. In the River Valley area, the figure was 6.5 per cent.

CBRE also notes that new supply of office space from the second half of this year to 2010 will average only 600,000 square feet per annum. ‘Office take-up is projected to be above two million sq ft for 2006, and with tenant demand expected to remain strong, the limited supply over the next five years could start to impact occupiers’ ability to accommodate space expansion,’ it said. ‘Tenants looking for CBD space may have to compromise their preferred location, whilst having to face higher rents across all office grades.’

Rival property consultancy group Jones Lang LaSalle predicts that prime Grade A rents in Raffles Place – which rose 15-16 per cent in the first six months of this year from end-2005 levels – are likely to increase a further 15-20 per cent by year-end, bringing the full-year increase to 30-40 per cent.

CBRE said average Grade A monthly rent rose 13.3 per cent quarter-on-quarter to $6.80 psf in Q2.

Separately yesterday, CBRE said it was named the leading brand in commercial real estate for the fifth year in a row, in a survey of real estate professionals worldwide. The survey was conducted by The Lipsey Company, which provides training and professional development services to the commercial real estate industry.

Source : Business Times – 11 Jul 2006

UOB sells OUB Building for $42.9m

United Overseas Bank has sold a smallish freehold office building at 60 Robinson Road, opposite Lau Pa Sat, for $42.9 million or $1,000 per square foot (psf) of existing net lettable area.

The buyer intends to spend $12 million refurbishing the property – now known as OUB Building – to substantially increase its net lettable area.

Including stamp duty, interest and fees, the all-up investment cost will be about $60 million or $915 psf of future net lettable area after refurbishment.

The buyer is CP Grace III Pte Ltd, a special purpose vehicle (SPV) owned equally by Asia Equity Partners – a boutique investment and fund management outfit set up by former DTZ Debenham Tie Leung executive director Yusof Wahid – and CP Grace Capital, whose shareholders include low-profile Indonesian investors.

However, the investment will subsequently be funded by Injaz AsiaEquity Property Fund I, which is substantially owned by Injaz Mena, an investment bank in Abu Dhabi that manages the wealth of high net-worth Middle Easterners including royal families. AsiaEquity’s fully-owned unit AsiaEquity Partners (Cayman) is general partner to the Injaz fund.

This is the second major deal structured by Asia Equity Partners to be announced recently.

Last month an SPV called CP Grace One – controlled by Asia Equity Partners and the Indonesian investors – sold 55 Market Street, formerly known as Sinsov Building, for $72.5 million.

This was 18 months after it was acquired for $34.1 million and refurbished, taking the all-up investment to $54 million.

The buyer was Allco Commercial Real Estate Investment Trust.

Asia Equity Partners has been granted exempt fund manager and exempt corporate finance adviser status by the Monetary Authority of Singapore under the Securities and Futures Act.

The acquisition of OUB Building will be completed in December, around the same time that UOB – which occupies the entire building except the ground floor – will vacate the property.

Refurbishment is expected to start in January next year and is slated for completion 18 months later.

Asia Equity Partners managing director Yusof Wahid said: ‘Our property advisers have indicated achievable rentals in the region of $7 psf a month based on our refurbishment plan and specifications if the property is ready and available for lease today.’

Market watchers say that assuming the average rental the building can achieve when it is ready in two years is about $8 psf – given tightening office supply until late 2009, when the first phase of the mega Business & Financial Centre will be ready – the net yield for the investors works out to around 8 per cent.

The refurbishment will boost the building’s net lettable area 53 per cent, from 42,893 sq ft to 65,580 sq ft, while the gross floor area will increase on a smaller scale, from 81,822 sq ft to 84,253 sq ft.

The 16 storeys in the existing building will be reduced to 15 storeys.

The top level will be demolished but the existing void on the fifth level will be converted to usable floor area and double-volume public space will be created at the first storey.

A mechanical carpark stacking station with 20 lots will be incorporated, doing away with the existing basement car park.

Source : Business Times – 11 Jul 2006

CBD office rents set to rise up to 10% in H2

OFFICE rents, which are on a upward trend, show no sign of softening, says Knight Frank in a report on Singapore’s office market. The property consultancy expects office rents to increase in the second half of this year by as much as 10 per cent for Grade A buildings in the prime area, and by 4 to 6 per cent on a islandwide basis.

Knight Frank attributes the expected rise to a shortage of new office supply in the prime Central Business District (CBD) area. ‘With supply staying at stubbornly tight levels in the face of healthy demand, office rents will remain on course to ride the upward trend,’ the consultants say.

‘The second half of 2006 is likely to witness another period of sustained rental appreciation.’

One consequence of the rising rentals is that some firms in the CBD are considering relocating to the fringe areas, the report says.

In the recently concluded second quarter, rentals across all aspects of the office market moved upwards in unison, Knight Frank’s report showed. Grade A office buildings remain highly sought-after.

Average rent levels for Grade A office buildings in Raffles Place grew by 3.8 per cent quarter-on-quarter to $6.10 psf while the nearby Shenton Way and Robinson Road rose by 3.5 per cent to $4.50 psf. Prime office rentals in the Suntec, Marina Centre and City Hall area also witnessed a rise of 4.3 per cent – to $5.50 psf.

The Orchard Road shopping belt continued to command high office rentals at $5.90 psf, 1.0 per cent higher than in the first quarter of the year.

Suburban office rents saw less upward pressure.

Knight Frank says that the outlook for office landlords remains bright as a result of strong demand – due to the rosy economic prospects of Singapore as well as the bullish sentiment in the banking and finance sector.

Increased demand for office space in the second quarter was fuelled by financial institutions. Reuters and Credit Suisse are expanding, and US investment bank Merrill Lynch also decided to set up a major global support operations in Singapore.

‘The wave of new financial institutions setting up back offices and existing ones expanding their operations looks set to continue,’ the report says.

‘With the International Monetary Fund and World Bank meetings ready to be held in Singapore during September, there could be positive spillover effects into the finance sector.’

Source : Business Times – 4 July 2006

SIA sells its Robinson Rd building for $344m

SINGAPORE Airlines (SIA) has finally sold its building at 77 Robinson Road – for a higher-than-expected $343.88 million – to TSO Investment, a fully owned subsidiary of a property fund managed by CLSA Capital Partners. The price works out to about $1,165 per square foot (psf).

The 35-storey SIA Building was carried in SIA’s books at $118.77 million, which means the company realised a gain of $225.11 million before commissions. The sale price is about 7 per cent higher than the market’s expected price of $325 million.

‘The decision to sell the building was made as part of a regular review of the airline’s non-core assets, and following a successful private tender exercise, conducted by CB Richard Ellis,’ SIA said in a statement.

Analysts said while the transaction was material and would provide a one-off boost to SIA’s earnings, the numbers involved were small relative to the $12.5 billion worth of assets SIA carried in its books.

‘Of course, we will see a non-recurrent boost to quarterly earnings,’ said Vincent Ng of S&P Equities Research. ‘But the gain represents barely more than 2 per cent of the assets carried. I don’t think it will have a significant impact on the valuation of the company or recommendations on the stock.’

SIA plans to use proceeds from the sale, expected to be completed in eight weeks, for investment and growth of the company and its subsidiaries.

In recent years, the airline group has been seeking to divest its non-core non-airline businesses, including property, ground services (Singapore Airport Terminal Services) and SIA Engineering Co.

SIA redeveloped the building in 1997. It has a net floor area of nearly 295,000 sq ft, plus 180 carparking spaces, and is almost fully let. SIA occupies about 10 per cent of the property’s net lettable area (NLA), and has committed itself to a two-year leaseback on this space.

According to market insiders, the $1,165 psf of NLA price works out to a net property yield of around 3.8 per cent, based on prevailing rent levels.

CLSA was one of several contenders for the building, together with the real estate arm of Deutsche Bank, DB Real Estate, and a Goldman Sachs fund.

SIA also has several dozen smaller properties in Singapore and around the world. The next biggest, after the SIA Building, would be its Singapore Airlines House in Sydney. An SIA spokesman told BT that the company was ’still considering its options’ as to what do with that building.

Source : Business Times – 29 Jun 2006

SIA Building price crosses $325m mark: sources

THE race for SIA Building at Robinson Road is hotting up with the price said to have crossed $1,100 per square foot (psf) of net lettable area (NLA), or $325 million, sources say.

At these levels, the net yield is understood to be under 4 per cent based on the property’s current rental stream.

But with the recovery in the office sector, bidders are clearly looking at the growth story. What the final price for 35-storey SIA Building will be remains to be seen, depending in part on how terms are negotiated, say industry observers.

Property market watchers tipped a CLSA fund as a strong contender for SIA Building. Others contesting for the property include the real-estate arm of Deutsche Bank, DB Real Estate, and a Goldman Sachs fund.

CLSA Merchant Bankers recently completed its purchase of the freehold HB Robinson on Robinson Road from Ho Bee for $80 million or about $870 psf of NLA, reflecting a gross yield of 2-plus per cent. A Goldman Sachs fund last year bought DBS Towers 1 and 2 in Shenton Way for $690 million.

CB Richard Ellis, which is handling the sale of SIA Building, declined to confirm the identity of the frontrunner or the price when contacted by BT yesterday.

An initial expressions of interest for the property – which stands on a site with a remaining lease of 87 years – closed in late April with 13 offers from local and foreign institutional investors.

Of these, seven were shortlisted and invited to take part in a private tender that closed on June 15.

The parties that have looked at the building at various stages of the bidding process are said to have included international names like GE Capital, Lehman Brothers and ING Real Estate Investment Management representing Germany’s Difa Deutsche Immobilien Fonds, which specialises in managing open-ended real estate funds.

Others include a property fund managed by Keppel Land’s Alpha Investment Partners as well as Real Estate Investment Trusts listed on Singapore Exchange, including CapitaCommercial Trust, Suntec Reit and Macquarie MEAG Prime Reit.

However, with the stock market rout that has sent up yields on Reits, the local Reits may have had to drop out of the race, property market watchers suggest.

SIA Building, completed nine years ago, has a total NLA of 295,640 sq ft. It is almost fully let.

Tenants include Rabobank, Royal & Sun Alliance Insurance and tyre maker Michelin.

Ground-floor tenants include OCBC and Stanchart. SIA itself occupies a couple of floors for the sales offices of Singapore Airlines and Silk Air.

The building has 31 floors of office space, some retail space and about 180 carparking spaces.

Source : Business Times – 24 Jun 2006

Raffles Place Grade A office rents up 13.1% in Q2

TIGHTENING prime office space and buoyant demand pushed up the average Grade A office rental value in the prime Raffles Place area by 13.1 per cent in Q2 over the preceding quarter, says Colliers International.

The $6.37 per square foot average monthly gross rent in Q2 for the location – which the firm defines as including new developments in the Marina Bay area like One Raffles Quay – is 23.2 per cent higher than the Q4 2005 level.

Colliers predicts a further 12 to 15 per cent increase in the second half of this year, followed by another 15 per cent for the whole of 2007. ‘New supply of good grade office space will remain muted till the completion of the Business & Financial Centre in 2009-10,’ the firm said yesterday.

The average monthly gross rent for Grade A offices in Raffles Place has recovered by 61.3 per cent from the recent bottom of $3.95 psf in Q1 2004. But the latest figure of $6.37 psf is still below the 1996 peak of $9.77 psf, the firm said.

The 13.1 per cent hike in Q2 surpassed the previous quarter’s 8.9 per cent gain and is also the biggest quarterly rise recorded in the past 10 quarters for Grade A office space in Raffles Place.

The property consultancy says that in Raffles Place as well as all major office micromarkets across the island, the second quarter’s Grade A office rents saw their steepest increases since the market bottomed in Q1 2004. ‘Currently, Grade A office stock in Singapore has reached the technical full occupancy rate of above 95 per cent. ‘Good quality office space with large floor plate in excess of 15,000 sq ft is highly sought after. This is evident from the take-up rate of 1.3 million sq ft of office space in One Raffles Quay, which was fully committed way ahead of its completion date,’ says Ms Tay.

‘This has enabled One Raffles Quay (ORQ) to achieve benchmark rentals which swiftly filtered down to the rest of the office market, leading to broad-based rental growth,’ she said.

ORQ, which boasts big-name tenants like Deutsche Bank, ABN Amro, UBS, Barclays Bank, Credit Suisse, Societe Generale and Ernst & Young, is marketed by property consultancy CB Richard Ellis. The development comprises two towers. The first tower was completed in April and the second is slated for completion in October.

‘An example of just how tight the office market is becoming can be seen in Merrill Lynch’s recent leasing commitment to the HarbourFront office micromarket, which includes more than half of HarbourFront Tower 5, which is slated to complete only in late 2008,’ says CB Richard Ellis executive director Moray Armstrong.

Source : Business Times – 20 Jun 2006

GuocoLand sells Robinson Centre for $145m

GUOCOLAND has sold the 20-storey Robinson Centre for $145 million to a fund managed by Keppel Land’s subsidiary, Alpha Investment Partners. The acquisition price for the property, which stands on a site with remaining lease of about 90 years, works out to $1,115 psf of net lettable area. GuocoLand has entered an arrangement to manage the building, with a net lettable area of about 130,000 sq ft, for two years on an exclusive basis, and has given the buyer a property income undertaking for a yield of 4.5 per cent for the period.

GuocoLand said the divestment is expected to result in a net gain of $17 million. Based on its latest audited consolidated accounts as at June 30, 2005, the sale is expected to result in an increase in earnings per share from 11.54 cents to 14.12 cents. The sale will not materially affect the group’s net tangible assets per share. GuocoLand, controlled by Malaysian tycoon Quek Leng Chan, said the cash proceeds will be redeployed to the group’s property development and investment activities.

Source : Business Times – 17 Jun 2006