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23% of firms cited poor business as a factor for termination: JTC

Termination of leases of JTC flatted-factory space, which is supported by manufacturing and services, hit 37,000 sq m in the first quarter of 2008 - 22 per cent higher year on year and 14 per cent higher quarter on quarter.

According to JTC’s quarterly facilities report for Q1, gross allocation of flatted-factory space, at 63,100 sq m, was 9 per cent down quarter on quarter but 122 per cent up year on year.

Net allocation was positive for a fourth straight quarter, though growth, at 28 per cent, was lower than in the preceding quarter.

JTC’s report also shows that 23 per cent of companies cited ‘poor business’ as a factor for termination, up from 7 per cent in Q4 2007. Only 35 per cent cited ‘consolidating operations’, compared with 54 per cent a quarter earlier.

Termination of ready-built facilities, which include flatted factories, increased 13 per cent year on year to 51,100 sq m.

But net allocation of ready-built facilities was six times higher year on year at 38,400 sq m, though this was almost 50 per cent down from the preceding quarter.

Overall occupancy increased 1.3 percentage points, raising the overall occupancy rate for ready-built facilities to a record 93.9 per cent.

Net allocation of technopreneur increased a modest 100 sq m in Q1. Demand was 12,900 sq m, while supply was unchanged at 15,100 sq m.

Gross allocation of business park space was 5,800 sq m, or 19 per cent lower year on year. Termination was 2,500 sq m, or 2 per cent lower year on year. As a result, net allocation was 3,300 sq m.

Gross allocation of standard factory space rose to 10,500 sq m while termination was flat at 2,300 sq m, resulting in net allocation of 8,200 sq m.

For stack-up factory space, demand and supply remained largely unchanged in Q1. Net allocation was 800 sq m. Gross allocation was 9,700 sq m while termination was 8,900 sq m.

Net allocation of prepared industrial land was 8 per cent lower quarter on quarter but 20 per cent higher year on year.

A larger proportion of gross allocation of prepared industrial land in Q1 was for manufacturing and supporting sectors.

The service and chemical sectors contributed 59 per cent and 22 per cent respectively to total gross allocation.

Source : Business Times - 30 Apr 2008

CCT defers decision on redeveloping site into office building

CapitaCommercial Trust (CCT) has decided to defer its decision on the redevelopment of Market Street Car Park (MSCP) into an office building that could cost up to $1.5 billion.

Asked if the huge supply of new office space after 2010 was a determining factor, Lynette Leong, CEO of CCT manager CapitaCommercial Trust Management Ltd (CCTML), said: ‘No, the main reasons are the significant size of the redevelopment, rising construction costs, present volatility in financial markets and the unknown development premium amount, which have caused us to defer the decision on the planned redevelopment, such that it will not be made any earlier than mid-2009.’

Ms Leong also added that CCTML is ‘carefully evaluating the financial viability of and the funding structure for the redevelopment’.

‘We are not concerned about the new office supply after 2010 given that statistics show that office demand for good-quality office space is still strong and that the lease pre-commitments for the new supply have also reached a high level. For example, about 52 per cent of the office space at Marina Bay Financial Centre has been pre-committed three years ahead of its completion,’ added Ms Leong.

Apart from obtaining the necessary approvals, including the approval of CCT’s unitholders, if required, Ms Leong said that the decision to redevelop the site will always be subject to the financial viability of the project, which includes the amount of development premium payable based on the payment of 100 per cent of the enhancement in land value (instead of the standard 70 per cent).

She said: ‘We do not have any indication of the amount of development premium payable right now. However, it is expected to be a major component of the total redevelopment cost of MSCP.’

When the project was first announced in January, CCT said that the total project cost, depending on the development premium, could range from $1 billion to $1.5 billion.

On rising construction costs, Ms Leong said that this has increased by 10-15 per cent since the beginning of the year and that CCTML had also sought quotations from the construction companies.

Ms Leong said it would continue to take the necessary steps to obtain the planning permission (PP) from the Urban Redevelopment Authority, and assist its retail tenants in relocation. It would also ‘continue operating the car park to serve our season and hourly car park users’, she added.

While the potential loss of 704 car parking lots at MSCP was a prickly issue with many of its current uses, CCTML said that the provision of car parking lots was not an issue in getting PP.

Cushman & Wakefield managing director Donald Han said the deferment was ‘excellent news’, not least because occupancy costs, which factor the cost of car parking, would have increased.

He also reckons that the deferment could be linked to MSCP historically being designed to serve the CBD until new lots are provided. However, new restrictions limiting the number of lots in new buildings will have an impact on the number of available lots.

Knight Frank director (research and consultancy) Nicholas Mak believes deferring the project could be a strategic move to see if construction costs and rates for development charges could fall in the future.

But he believes the project will not be deferred for too long. ‘Reit’s have to constantly look for a growth story or it won’t seem interesting to investors.’

Source : Business Times - 30 Apr 2008

The Urban Redevelopment Authority (URA) has released two more residential sites through the Government Land Sales (GLS) programme. And while interest is expected to be good, profit margins for developers will be slimmer.

A 1.08 ha site at Woodleigh Close, with a maximum permissible gross floor area of 30,167 sq m (324,714.5 sq ft), is up for sale via the GLS confirmed list. Cushman and Wakefield managing director Donald Han reckons the potential profit margin for a developer could be about 12 per cent.

This is based on a land price of $350-$380 per sq ft per plot ratio (psf ppr), factoring in construction costs and an estimated selling price based on current project launches. In the vicinity, Mr Han says Parc Mondrian and Blossoms at Woodleigh are going for $700-$850 psf. Noting that profit margins were 30-40 per cent until the effects of the US sub-prime crisis and global credit crunch took hold late last year, Mr Han said: ‘In bad times, profit margins can fall into single digit figures.’

The point, however, is that profit can still be made. ‘It’s a matter of who can control costs better,’ he said. ‘Construction companies can control costs better, so for them, even a baseline profit margin of 8 per cent is feasible.’

Reflecting market volatility, Knight Frank director (research and development) Nicholas Mak believes the land price for the Woodleigh site could be $300-$370 psf. ‘If the market turns bearish within the next two months, the bids will be at the lower end,’ he said. He expects four to eight bidders will take part in the tender, including major developers.

URA has also released detailed sale conditions for a 2.08 ha reserve list site in Upper Thomson Road, close to Bishan Park and Lower Peirce Reservoir Park, for residential development. The site has a maximum permissible gross floor area of 43,758 sq m (471,006.7 sq ft).

Mr Han said new projects in the area are going for about $850 psf. Factoring in construction costs and a developers’ profit of 10-12 per cent, he expects bids to be $380-$400 psf ppr.

Separately, the Housing and Development Board has made available a reserve list site at Sengkang East Avenue and Buangkok Drive for an executive condominium. The 17,000.8 sq m site has a permissible gross floor area of 51,002.4 sq m.

Source : Business Times - 30 Apr 2008

Analysts believe business decision is behind the move

Plans for a $200 million hotel in the new Singapore Sports Hub appear to have been canned, even though preferred bidder Singapore Sports Hub (SSH) consortium said options to build the hotel at a later stage remain open.

Genting International, which was in discussions with the consortium about the proposed hotel, said in an announcement yesterday that it has ‘discontinued discussions with the consortium for the proposed construction of the hotel as it has been informed that the Singapore Sports Council (SSC) has decided not to have a hotel in the Singapore Sports Hub at this point in time’.

A Genting spokesman declined to comment beyond saying that ‘the ball now lies in their court’ regarding the proposal.

This is the first time news has broken that the hotel option would not be included in the deal. SSC did not respond by press time.

SSH consortium head Ludwig Reichhold said the proposed hotel was only an option and was ‘not confirmed’ at the time of bidding. ‘We are busy finalising the main contract with them now and as things were already running ahead with the main contract, negotiating more with the hotel factored in would have delayed the work,’ he added.

Analysts believe a simple business decision is behind the move. While there have been reports of strong demand for rooms, there are also a lot of hotels in better locations coming up in the years ahead. The floor area available could be much better used as retail space.

Hotels are a bit more complicated to run than retail and office space, Knight Frank director (research and consultancy) Nicholas Mak pointed out. Sharply fluctuating rates and branding and operational costs all add to the business risks. In the end, they need to make a ‘balanced decision’, he said.

The Sports Hub, whose construction was originally scheduled to begin last year, is already running late.

According to reports, the reason for the delay is that the paperwork for the nearly $2 billion public-private partnership project has not been completed. The latest sudden revelation suggests that more work is in store.

Earlier reports estimate the completion date will stretch from the end-2010 original date to at least 2012.

Source : Business Times - 30 Apr 2008

They are optimistic that things will improve next year

(NEW YORK) Even millionaires are feeling the economic squeeze, with many saying that they don’t even ‘feel’ wealthy. But as a group, they are optimistic that things will improve in the next year.

The Fidelity Millionaire Outlook, a survey of 1,000 people with at least US$1 million in assets to invest, found that you don’t have to be a laid-off worker to have a negative view of the US economy.

Using a scale ranging from minus 100 as the worst to 100 as the best, the survey found that high net-worth individuals have a minus 50, or ‘very weak’ view of the economy right now. But when asked where things will be next January, the grade rises to a positive 18.

That could mean that millionaires see ‘today’s problem as tomorrow’s opportunity’, said Jack Callahan, president of Fidelity Institutional Wealth Services, the unit that sponsored the survey, which was conducted by an independent research firm.

People with more than US$10 million to invest other than their home and retirement savings - what Fidelity called ‘deca-millionaires’ - have a more pessimistic view than those with less than US$2.5 million.

Tellingly, about 19 per cent of the people surveyed do not consider themselves wealthy, even though they have on average US$3 million to invest and earn at least US$270,000 a year.

Mr Callahan suggested that reflects that people in this category are struggling to maintain a lifestyle which their income cannot support. ‘It says these folks are spending beyond their means,’ he said.

Overall, 31 per cent of those surveyed intend to put more money in the next year into fixed-income vehicles - typically bonds or preferred stocks that carry lower risk and guaranteed returns. Some 27 per cent plan to buy more individual stocks, with about half that, 14 per cent, planning to increase real estate investments.

‘As they look at the future and look at the markets, they see fixed-income as the best,’ Mr Callahan said. While fixed-income investments are usually considered safer, he noted that many have lost value in the last year because of the sub-prime housing crisis and credit crunch. Three-quarters of those surveyed said that the sub-prime fallout hurt their investments, with 42 per cent saying that the effect has been at least moderate.

The 2008 survey, conducted in January by Burke Inc, did not identify Fidelity as the sponsor. It has a margin of error of plus or minus 3 percentage points. — AP

Source : Business Times - 30 Apr 2008