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But risk factors seen checking exuberant bidding

All eyes in the property market are on next week’s state tender for the Somerset Central site above the Somerset MRT Station.

Most property consultants and observers expect the 99-year leasehold commercial site to fetch a top bid 5 to 15 per cent more than the $1,085 per square foot per plot ratio that Far East Organization paid for the nearby former Glutton’s Square site in January. But some industry watchers reckon that risk factors could rein in exuberant bidding.

Some consider Somerset Central a superior site to the Glutton’s Square site, as a development on the former will be directly connected to Somerset MRT Station. As well, it is touted to be the last major site in Orchard Road available for a sizeable retail project - although Singapore Tourism Board has designated two other smaller sites for sale on short-term leases.

Factors such as these are expected to drive up bidding for the 78,702 sq ft site that can be built up to 424,205 sq ft gross floor area (GFA). At least 60 per cent of the GFA has to be for retail, food and beverage or entertainment use.

Market watchers expect mostly the same bidders who contested for the Glutton’s Square site to bid for Somerset Central when the Urban Redevelopment Authority’s tender for the latter closes on Wednesday next week.

These would be Far East Organization, Frasers Centrepoint (possibly in partnership with Far East), Lippo, Pacific Star group, City Developments and Hong Kong’s Park Hotel Group (the owner of Crown Hotel at the corner of Orchard and Bideford roads). Other bidders could include United Overseas Land, which owns the former UOL Building plot behind Somerset Central, which it is redeve loping into a serviced apartment project, and property giant CapitaLand.

‘The benchmark has been set by Far East’s bid for the Glutton’s Square site, and anyone who wants the Somerset Central plot will have to bid higher,’ a potential bidder said.

The inevitable bidding war is expected, but some bidders may be more restrained because the site is not without risks, some analysts say.

First, there will be competition from bigger mall developments.

Farther down Orchard Road, CapitaLand and Sun Hung Kai are developing a mall with about 600,000 to 700,000 sq ft net lettable area, above Orchard MRT Station. It is slated to open by Christmas 2008. ‘The area around Somerset MRT Station will still play second fiddle to the Orchard MRT Station location, which is superior in terms of pedestrian traffic circulation and street activity,’ says a developer who is in the running for Somerset Central.

And then there will be about 1 million sq ft of retail space at the Marina Bay Sands integrated resort (IR) development to be completed in late 2009. ‘One has to come up with a concept for Somerset Central that does not clash with the Marina Bay IR,’ reckons a top executive with a major mall developer.

Retail market watchers generally expect the retail component of Marina Bay IR to feature more high-end names, like luxury brands, watches and fine dining.

The developer of the Somerset Central site could try to differentiate its mall by capitalising on the youth theme along that stretch of Orchard Road, as seen at Orchard Cineleisure, The Heeren and Youth Park.

‘Hopefully, the IR will bring the intended tourism spin-offs so that the Singapore retail cake will get bigger, instead of the same cake being sliced into smaller pieces,’ is how a market watcher put things.

The successful bidder for the Somerset Central site may also have to contend with competition right next door if it can’t strike a deal to cooperate with the owners of two neighbouring properties - Specialists’ Shopping Centre, held by OCBC, and the Glutton’s Square site sold to Far East Organization. Far East and OCBC are said to have formed some sort of alliance to cooperate - involving either a massive retrofitting of Specialists’ Centre or a total redevelopment of the more than 30-year-old complex along with the development of Far East’s site - although details will only be finalised after Somerset Central is awarded.

If Far East or Frasers Centrepoint (part of the OCBC stable) clinches Somerset Central, the cooperation will be extended to include the latest site, market watchers say. However, if another party bags the plot, Far East and OCBC may decide not to team up with it. If this is the case, the Somerset Central project risks being dwarfed by a bigger project next door that will compete with it for both tenants and shoppers.

Interesting forces could be at play at next week’s tender.

Source : Business Times - 10 Aug 2006

Rises for Q2 2006 at 13.5% q-o-q and 44.4% y-o-y, says JLL

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

SINGAPORE Telecommunications (SingTel) yesterday said it has sold its site at No 50 West Coast Road for $33 million to FCL Loft Pte Ltd, a wholly owned subsidiary of Fraser Centrepoint Properties Ltd.

The site was previously used for bulk cable storage. SingTel has obtained provisional permission for a condominium, with basement carpark and communal facilities.

Chua Sock Koong, SingTel’s group chief financial officer and CEO international, said the sale will help SingTel ‘better utilise capital and free up cash resources that can be redeployed in (its) core telecommunications business as well as in new investments’.

The purchase price was arrived at after considering various commercial factors, including the development potential and location of the property.

The net book value of the site is about $1.7 million, which gives SingTel a gain on disposal of about $31 million.

Source : Business Times - 1 Aug 2006

Their small size might tempt end-users, rather than developers, to make bids

THREE industrial land sites totalling 4.1 hectares are on the latest confirmed list of the Government Industrial Land Sales Programme. They are significantly smaller than the five sites totalling 12.9 ha put on the list for the first half of this year.

The Ministry of Trade and Industry (MTI), which yesterday released the three industrial sites, said that the sites were put on the list ‘in view of the demand for industrial land’.

Market watchers say that reduced number and size of sites on the confirmed list is a prudent move by the government to dispel worries about a glut of industrial space.

Instead, MTI also released another three sites with a combined land area of 10.8 ha on the reserve list - larger than the five sites totalling 8.9 ha put on the reserve list for the first half of 2006.

‘This will let the market drive the demand,’ said Colliers International’s managing director Dennis Yeo.

Sites on the reserve list require a bid - or trigger price - that meet the minimum bid requirements in order for the site to be put up for public tender.

In the process, the trigger price is made public. For sites on the confirmed list, there is no trigger price and bidders can offer whatever they see fit.

By skewing the availability more towards sites on the reserve list, the government ensures that should buyer interest be strong, there are enough sites on the market for developers and end-users to purchase.

However, there is no ‘force-feeding’ of the market, said Mr Yeo.

Market observers believe that demand for the confirmed sites should be good as the economy is improving - which could be seen as a call for more sites to be released.

‘I think it (the three sites) is a good thing, as the market sentiment has picked up,’ said CB Richard Ellis’ (CBRE) director of industrial services Bernard Goh. ‘The sites on the confirmed list are likely to be bought.’

One site in Woodlands Industrial Park, whose tender closed recently, saw eight bids in all by mainly building and construction companies.

This time around, rather than developers snatching up the sites, the small sizes of the three sites on the confirmed list means that end-users might be tempted to make bids. End-users (such as manufacturers) usually require smaller sites.

Perhaps to allow end-users to participate in the bidding process, the sizes of individual sites have fallen over the years.

According to Mr Yeo, in the mid- to late-nineties most sites were typically larger than 5 ha.

The release of the eight sites - both on the confirmed and reserve lists - come as industrial property occupancy rates in Singapore are forecast to continue rising.

According to a recent report by CBRE, average rents for factory space and high-tech space increased by 5.7 per cent to $1.85 per square foot in the first quarter of 2006 - for the first time since 2003.

‘Looking ahead, industrial properties should enjoy higher occupancy rates and moderate rises in rents for the rest of the year, with the investment market showing more activity for the second half of the year,’ said CBRE.

Source : Business Times - 1 Aug 2006

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