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CITY Developments (CityDev) was yesterday the sole bidder for a 99-year leasehold site slated for development into backroom offices in Tampines.

Its bid price of $225 million works out to $622 per square foot (psf) of potential gross floor area.

While that seems like a viable investment based on current as well as near-term projected office rents amid the shortage of office space, some market watchers wondered if the listed property group could have saved a small bundle by bidding lower, especially as it was the only bidder in the public tender exercise yesterday morning.

Just a day earlier, Urban Redevelopment Authority (URA) had made public the minimum reserve price of $448 psf per plot ratio for a commercial site at Anson Road earmarked for a prime office development.

‘Considering that Anson Road is more prime than Tampines, the government’s minimum price for the Tampines site should be lower,’ a market watcher observed.

While the Anson Road plot is on the reserve list, which means its minimum or reserve price is made public when a developer makes a successful application for its release, the Tampines site offered by Housing & Development Board is on the government’s confirmed list, where minimum prices are not made public.

‘May be they (CityDev) didn’t expect to be the only bidder for Tampines and so may not have stationed people outside the tender room when it opened in the morning to see if there was anyone else who bid,’ reckoned one market watcher.

Another observer, CB Richard Ellis executive director Li Hiaw Ho, was also surprised that the tender attracted only one bid, given the tight supply of office space in the Tampines Regional Centre.

However, another seasoned property player had another explanation: ‘Maybe the other potential bidders read the writing on the wall: that the government may release a lot of office sites in the near future’ to relieve the acute office shortage building up which is threatening to clip Singapore’s competitiveness.

CBRE’s Mr Li estimates that based on CityDev’s bid price, its breakeven cost could be around $1,200-$1,300 psf.

‘Based on current rents of about $5.50 psf a month for prime offices within Tampines Central, (City Dev) could expect a yield of about 4.2 to 4.5 per cent,’ he said.

Another observer estimated a higher breakeven cost of about $1,370 psf but said that assuming rents in the area rise from about $5-$6 psf currently to about $7-$8 psf in about 18 to 24 months when the new project on the latest site could be ready, the net yields could still be pretty decent at about 4.8 per cent to 5.6 per cent.

The 86,109-sq-ft site can be developed into a project with up to 361,656 square feet maximum gross floor area.

This could yield about 300,000 sq ft of lettable office space, according to property consultants.

A CityDev spokeswoman said that the group’s scheme is for mainly office use but it may have some pockets of retail space if appropriate.

Source : Business Times - 16 May 2007