28-storey Anson Road building to be redeveloped after some tenants spend $100k on renovations

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SINGAPORE - Tenants at a 44-year-old 28-storey office tower in the financial district have been told to pack up and leave by year-end as the owners have plans to redevelop the plum site next year.

Some tenants just recently moved in, spending up to S$100,000 on renovations - and are unhappy to be forced out so soon.

Owners of the building, Hub Synergy Point, at the corner of Enggor Street and Anson Road - opposite M Hotel Singapore - sent out notification letters to the building's 30-odd tenants late last month.

After the building is vacated, construction work will begin "soon after" and the new building will be ready by 2020, according to the letter seen by The Straits Times.

The move came as a surprise to some tenants who moved into the building recently.

For instance, local food and beverage firm Prive Group, moved into a 4,500 sq ft office space there just last month and has already spent nearly S$100,000 on renovations.

"It's not just about renovation costs, but the disruption of our business. It takes a lot of effort to move," says Prive Group chairman Yuan Oeij. "But now that this has happened, we just want to make sure we are treated fairly."

Meanwhile, eatery Jiak Kopi Cafe, which also spent more than S$100,000 on renovations in recent months began operations on the ground floor at the end of February.

Cafe owner Mr Kho Long Huat said he would not have renovated had he known about the redevelopment plans when he signed the lease agreement last December.

"We're just a small business," said Mr Kho, who is also the managing director of a construction company. "It's unfortunate that our investment is now going down the drain."

Prive Group is seeking an arrangement with the building owners that is "fair" for both parties, while the eatery's attempts at seeking compensation has been rejected.

The management office declined multiple requests for comment.

Not all tenants, however, were troubled by the redevelopment notice.

The lease agreement includes a clause that states that the landlord has to provide at least four months' notice to terminate the tenancy in the event of any redevelopment plans.

Recruiting company iKas Group, which has been leasing out an office at the building for six years, said it already had plans to move out.

"We've been here for a while and it would be nice to move to a new place," said manager Adam Davies.

Hub Synergy Point came under single ownership in 2015, after a company majority owned by Mr Ho Kian Cheong of Keng Seng Group bought the top three floors for a total of nearly S$30 million.

The company bought the 26th storey for S$9.97 million, or S$2,400 psf, and the 27th and 28th storeys for S$20 million or S$1,512 psf, according to a Business Times report.

Under a single ownership, the building's owner could redevelop the building to maximise its potential value. It is about 250-m from Tanjong Pagar MRT station.

Analysts say motivations behind the redevelopment could be to maximise the land's plot ratio.

Hub Synergy Point is 28 storeys but the maximum height allowed there is 35 storeys, according to the Urban Redevelopment Authority.

Director of real estate agency Chris International, Mr Chris Koh, said another reason could be to rejuvenate the building, which was built in 1973, to attract future tenants.

And with the office rental market expected to be flat this year, it is timely to carry out redevelopment plans now, he added.

Source: Straits Times, 30 June 2017

ICC Court sets up case management office in Singapore

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TO serve the dispute resolution needs of businesses in the region, the International Chamber of Commerce or ICC Court will set up a case management office in Singapore - the first international arbitral institution to have a physical presence here.

The new office is expected to start operating in the first quarter of 2018 at Maxwell Chambers.

Headquartered in Paris, the ICC Court will take up about 2,000 sq ft in the new Maxwell Chambers Suites - a conserved heritage building - which will be an expansion of Maxwell Chambers when the refurbishment works are completed in 2019.

Singapore is ICC Court's fourth overseas case management office after Hong Kong, New York and Brazil. In 2016, it administered almost 1,000 arbitral cases from around the world.

Senior Minister of State of Ministry of Law (MinLaw) Indranee Rajah said the move "will augment Singapore's offerings and raise our hub status up one notch".

Speaking at the third ICC Asia Conference on International Arbitration on Wednesday, Ms Indranee said: "It is a vote of confidence in Singapore as a base for major players to access and capture opportunities, and to be part of Asia's growth story."

MinLaw and the ICC Court announced their collaboration at the signing of a memorandum of understanding - a milestone agreement - in Singapore on Wednesday.

Under the partnership, MinLaw and the ICC Court will work together to develop and promote Singapore as a seat and venue for arbitration in Asia through advancing thought leadership, developing manpower talent and arbitration services, and undertaking joint marketing.

Said Alexis Henri Louis Mourre, president of the ICC Court: "With its two case management teams in Hong Kong and Singapore, as well as its representative office in Shanghai, the court is now able to offer a unique international arbitration platform across the entire Asian continent."

The new case management office forms part of a growing presence for ICC in Singapore.

Following the establishment of an Asia Regional Office, ICC's first regional office outside of Paris, in 2002, ICC and IE Singapore joined forces in 2015 to establish the ICC Academy, an e-learning platform for trade and banking professionals. Both outfits are currently located at Maxwell Chambers.

Singapore is a key international dispute resolution centre, offering a full suite of services including international arbitration, mediation and litigation. It is one of the top five seats of arbitration in the world and has been the leading seat of arbitration for ICC cases in Asia for the last seven years.

Source: Business Times, 29 June 2017

China co-working space player opens Singapore office

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URWORK, a Chinese co-working space operator, opened its Singapore office on Friday. It offers a platform that would link Singaporean and Chinese entrepreneurs, enabling them to leverage its network in 18 cities, including New York and London.

"Our Singapore office is a starting point for entering global markets," said Mao Daqing, founder and chairman of UrWork (Beijing) Venture Investment. It would "continue our vision of empowering collaboration and communication for cross border young entrepreneurs and promoting China's innovation and economic transformation".

Besides providing physical space, Dr Mao said, UrWork offers integrated services such as consultancy, local partnerships and "government relationships". So instead of renting space for S$550 to S$700 a month, entrepreneurs can be a global member for S$150 a a month. Dr Mao said that UrWork's Internet of Things system would allow access "without anything but a mobile phone".

Michelle Chow, IE Singapore group director for enterprise partnership, said: "UrWork is into . . . co-working spaces, but their core value is not just space - it is the rich B2B network that resides in each of their space and its inter-connectivity."

Source: Business Times, 24 June 2017

Q2 rents up for CBD Grade A and Marina Bay offices

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GRADE A office rents in Singapore's CBD may have bottomed earlier than expected.

Based on preliminary second-quarter estimates from JLL, the average rental values for its overall CBD Grade A and Marina Bay baskets have posted their first quarter-on-quarter increases after having declined for two years.

A stronger-than-expected take-up of offices in new developments and easing of supply pressure from 2018 to 2020 are among the factors that have contributed to the uptick in Grade A rents in the two baskets.

However, analysts warn that the overall office market is still not out of the woods, as secondary supply is poised to grow in older buildings as tenants relocate to newer projects.

Preliminary estimates from JLL show that the average gross effective monthly rental value for its Marina Bay basket rose 1.3 per cent quarter-on-quarter to S$9.51 per square foot (psf) in Q2 2017, after sliding 27.3 per cent from the recent high of S$12.90 psf in Q4 2014 and Q1 2015 to S$9.39 psf in Q1 2017.

The rent increase for Q2 2017 contrasts with a 1.0 per cent quarter-on-quarter decline in Q1 this year.

The preliminary rent figure for this quarter is down 2.3 per cent from Q2 last year.

JLL's Overall CBD Grade A office basket (comprising Raffles Place, Marina Bay, Tanjong Pagar/Shenton Way and Marina Centre) has also posted its maiden rental uptick of 0.6 per cent quarter on quarter to S$8.49 psf in Q2, after having slipped 20.1 per cent over eight consecutive quarters. From the recent peak of S$10.56 psf in Q1 2015, rents had declined to S$8.44 psf in Q1 this year.

The Q1 number was down 1.2 per cent quarter on quarter. JLL's preliminary Q2 figure reflects a year-on-year drop of 3.5 per cent.

Most market watchers have been expecting CBD Grade A rents to turn the corner only at the end of this year or early next year.

JLL's head of markets Chris Archibold said: "The take-up in new developments has been stronger than expected over the past six to nine months."

Major lease signings include Facebook's lease of more than 250,000 sq ft in Marina One and Uber's 55,000 sq ft in Guoco Tower. At Asia Square Tower 1, nearly all of the 130,000 sq ft or so that Google vacated last year has already been backfilled.

The Business Times understands that software giant Microsoft has signed up for about 125,000 sq ft in Frasers Tower in the Cecil Street/Telok Ayer Street locale; the building is slated for completion next year.

Microsoft is now located at One Marina Boulevard, where its lease for about 100,000 sq ft is said to expire in 2019. The tech giant did not respond to BT's queries by press time.

Besides relatively strong leasing momentum in new developments, improved overall business sentimentand the limited supply in the next few years also contributed to the increase in overall CBD and Marina Bay Grade A rents in Q2, said Mr Archibold.

After the estimated 2.9 million sq ft of office space expected to be completed islandwide this year (from projects such as Marina One, UIC Building, Vision Exchange and Arc 380), completion is expected to ease to around 1.6 milion sq ft next year, followed by less than 500,000 sq ft in 2019 and about a million sq ft in 2020.

Mr Archibold expects that moderate rental growth could continue in Marina Bay and in better-quality buildings in the CBD in the second half of the year.

CBRE's executive director of office services Michael Tay said: "The fact that the Grade A market has stabilised will augur well for the rest of the market, but landlords of older buildings will still need to be competitive. There is a lot of secondary stock arising from tenants vacating older buildings to relocate to new developments."

Despite the hype about the surprisingly strong office leasing volumes in new developments, agents acknowledge that it has been mostly a game of musical chairs as tenants relocate to newer buildings; there has been relatively little expansion in net demand.

Mr Archibold said the banking sector would need to make a comeback to really push net office demand up significantly.

"On a positive note, there is some expansion in demand from multiple sectors, with the two most talked about being technology and co-working. That said, these two sectors occupy only a small amount of the overall office market," he added.

Urban Redevelopment Authority data showed that the change in occupied office space shrank by 64,583 square feet of net lettable area (NLA) in Q1 this year - against an increase of 10,764 sq ft in the preceding quarter.

For the whole of last year, net demand was about 291,000 sq ft, down from 667,000 sq ft in 2015. The figure has been declining steadily since 2.3 million sq ft in 2011.

Source: Business Times, 23 June 2017

Strong take-up drives expansion at Maxwell Chambers

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THE Ministry of Law (MinLaw) on Thursday announced that 65 per cent of the new office space at 28 Maxwell Road has already been taken up even before refurbishment works begin.

To meet the strong leasing demand, the ministry will build a second annexe block to add 3,500 square feet (sq ft) of office space, on top of the 120,000 sq ft expansion that was originally planned.

The whole development has also been renamed Maxwell Chambers Suites to reflect its new role as an integral part of Singapore's dispute resolution ecosystem, Indranee Rajah, Senior Minister of State for Law and Finance, said in her keynote address at the groundbreaking ceremony.

When completed in 2019, Maxwell Chambers Suites will also provide a 24-hour public thoroughfare to allow easier pedestrian access between Tanjong Pagar MRT station and the Chinatown area.

In all, Maxwell Chambers Suites will provide about 50 new offices over four floors for international dispute resolution institutions, arbitration chambers, law firms and ancillary legal services.

Existing tenants have also decided to expand their floor plates, with The Arbitration Chambers and One Essex Court more than doubling the floor space of their offices.

MinLaw in January this year said it would be taking over the conserved building at 28 Maxwell Road, where the Red Dot Traffic Building once stood, for the expansion of Maxwell Chambers.

This is in line with the ministry's plans to take dispute resolution work in Singapore up another notch. It has identified investor-state dispute settlement as a new growth area for dispute resolution work in Singapore.

This refers to resolving investment disputes between foreign investors and host states. For example, if an investor put his money in a highway project, and the host government did something to impede the construction of the infrastructure, this matter would require arbitration to resolve. Such work typically involves complex and high-stake cases.

As at June 2017, around 10 investment arbitration hearings were held or are going to be held in Singapore this year, double the number in 2013.

Ms Rajah said: "Locally, we already have expertise in this area. A couple of our senior counsels, Mr Andre Yeap and Mr Alvin Yeo, have already been involved in cases like these, and there are others as well who have been advising...

"There are also international practitioners in the space who are doing it elsewhere at the moment. We would like to attract them to come here and do their arbitrations here. And with the expansion of Maxwell Chambers Suites, it will be a very conducive environment for investor-state arbitration," she told reporters.

Maxwell Chambers is the second most preferred hearing centre in the world for arbitration, after the Hong Kong International Arbitration Centre.

At the event, Philip Jeyaretnam, chairman of Maxwell Chambers, also described the genesis of the idea - how it first occurred to him that the former Red Dot building could become an extension to the existing Maxwell Chambers.

While walking around the Red Dot building one day, he ventured up to the upper floors and was struck by the two courtyards and clustering of small offices around them.

"To me, this strongly evoked the warrens and courtyards of legal London. Small offices clustered around open spaces fit the instincts of barristers and advocates who need their own offices to prepare for cases and write opinions, while having opportunities to interact with their peers including over meals and, dare one say, drinks. Think of the buzzing beehives of the Inns of Court."

The building at that time, however, was being used by design-type firms and many units were unoccupied.

It seemed to him that the design companies felt cramped by the small spaces rather than liberated. He became convinced that the building would be much better suited to lawyers than designers.

In the bigger picture, Maxwell Chambers Suites is expanding alongside a wave of other new projects in the vicinity, including Frasers Tower, Tanjong Pagar Centre, OUE Downtown Gallery, as well as the redevelopment of the CPF building by an Ascendas-Singbridge consortium.

All this is part of the government's effort to transform Tanjong Pagar. When completed, these developments together will create 300,000 square metres (sq m) of office space, 60,000 sq m of retail and F&B offerings, 1,200 hotel rooms and more than 1,000 homes.

Source: Business Times, 23 June 2017

 

Commercial site at Beach Road triggered for public tender

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A COMMERCIAL site at Beach Road with at least a 70 per cent office component has been triggered for sale under the Reserve List of the government land sales (GLS) programme, reinforcing analysts' perception that a recovery in sentiment for the office market is underway.

The Urban Redevelopment Authority (URA) said on Wednesday that it has accepted an application from a developer to put up the site for public tender. The unidentified developer has committed to bid at a price of no less than S$1.138 billion.

This two-hectare land parcel, which has a 99-year leasehold tenure, will have a maximum permissible gross floor area (GFA) of 88,313 sq metres.

At least 61,820 sqm has to be for office use. The remaining GFA can be developed for additional office, retail (subject to a maximum GFA of 3,000 sqm), hotel, serviced apartment and/ or residential uses.

JLL national director for research and consultancy Ong Teck Hui noted that the triggering of this site comes in tandem with positive investment sentiment in the office property market and also "at a time when office rents appear to be firming after two years of decline".

It would not be surprising if the unsuccessful bidders for the Central Boulevard site last November contest again for the Beach Road site, he added. "If residential use is incorporated in the development, it would coincide with an expected upturn in the residential market."

Most consultants expect at least 10 bids from a mix of local and foreign developers, with the winning bid in the range of S$1,400-1,700 per square foot per plot ratio (psf ppr).

The Central Boulevard white site last year drew a bullish top bid of nearly S$2.57 billion or S$1,689 psf ppr from Malaysia's IOI Properties Group, which roped in Hongkong Land this month through a joint venture to jointly develop the site.

Savills Singapore research head Alan Cheong flagged that the public tender for the Beach Road site may cause an upward adjustment of expectations of what values should be for CBD Grade-A offices.

Lee Nai Jia, head of South-east Asia research at consultancy Edmund Tie and Company, felt that with office rents of newer buildings stabilising and sentiment in the residential market improving, it is a good time to enter the market.

"There is much capital due to the low interest rate environment and limited supply of developments available in the market," he said.

The keen interest in CBD office developments has also spilled over to the Beach Road area, he added. "We anticipate that new developments such as DUO and South Beach will rejuvenate the area, with more companies willing to relocate there."

The former Beach Road Police Station sits on the site and the developer is expected to conserve and restore the building. The developer is also required to build an underground pedestrian link to the nearby Bugis MRT station.

Apart from any GFA for hotel, serviced apartments or residential use, the rest of the development's GFA cannot have more than three strata lots, thus prohibiting strata sub-division of the commercial and retail components.

Some consultants felt that the conservation of the former Beach Road police station on the site will enhance the character of the development.

Knight Frank head of research and consultancy Alice Tan noted that while the conservation element may cap building efficiency of the project, this conservation building fronts the main Beach Road, allowing the developer to introduce some highly visible and attractive retail concepts.

Ms Tan envisaged the Beach Road/ Ophir-Rochor area to shape up as a business enclave with this commercial development, along with DUO, South Beach and Suntec City. "This location has its distinctive uniqueness, being near Bugis with its attractive array of recreational, retail and hospitality amenities," she said.

Dr Lee also said the office development at the Beach Road site will shore up critical mass of new office buildings in the vicinity. Gross rents of newer office buildings in the area - namely DUO Tower and South Beach Tower - ranged from S$9.80 to S$11 per sq ft, comparable to Grade-A offices in Raffles Place, he pointed out.

The Beach Road site was first made available for sale on the GLS Reserve List in November 2014. URA said the public tender will be launched in about two weeks with a tender period of 12 weeks.

Source: Business Times, 22 June 2017

IOI Properties, Hongkong Land To Jointly Develop Prime Property In Singapore

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MALAYSIA-LISTED IOI Properties Group and Hongkong Land have entered into an agreement to jointly develop and manage a land parcel of about 1.1 hectares in Singapore's prime business district.

This land parcel is adjacent to One Raffles Quay and close to Marina Bay Financial Centre. It was awarded to IOI Properties following a tender in November 2016.

The scheme envisaged for the site development comprises two office towers of about 1.26 million square feet of leasable space and a small retail podium of about 30,000 square feet.

IOI Properties will hold 67 per cent of the joint venture (JV) company and Hongkong Land 33 per cent upon completion of the proposed JV structure.

The agreement between the two real estate groups is subject to certain regulatory and other approvals.

Source: Business Times, 12 June 2017

Hind Group sells Keong Saik Road hotel amid buzz in shophouse market

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HIND Group is selling Naumi Liora, a 79-room boutique hotel housed in 10 adjoining freehold conservation shophouses in Chinatown.

The price is understood to be S$75-S$76 million, which works out to about S$2,800 per square foot on a gross floor area (GFA) of just over 27,000 sq ft.

The shophouses, which are along Keong Saik Road, span two storeys and an attic.

Hind Group, controlled by the Jhunjhnuwala family, bought the property in 2011 - when it was known as The Saff Hotel - for nearly S$42.1 million. The property was spruced up and then relaunched under the group's Naumi brand the following year.

Rooms at Naumi Liora cost S$150 to S$230 a night.

When asked why Hind Group is selling the hotel, its founder and managing director Surya Jhunjhnuwala said: "Our current strategy, going forward, is to focus on what Naumi does best - offering a bespoke luxury experience.

"We now find that Liora does not fit into this mould, and as a group, we will be focusing on expanding to properties that can fulfil this."

The new owner of 47 to 65 Keong Saik Road is 8M Real Estate, a privately-held boutique property investment group founded in 2014 by Ashish Manchharam.

8M Real Estate said the Hind Group may continue to operate the Naumi Liora for about a year after the property transaction is completed next month.

At the moment, the ground floor of two of the shophouses is leased to Loh Lik Peng's Unlisted Collection, which operates The Library, a cocktail bar styled like a speakeasy.

Some hotel rooms are now on the ground level of some of the shophouse units, and Mr Manchharam plans to convert these into food and beverage (F&B) outlets.

"We want the entire ground level of this asset as F&B outlets because this provides higher value from a rental perspective. Keong Saik is an established F&B location and we plan to curate new concepts to enhance the area's pull.

"This would be similar to what we did at 112 to 116 Amoy Street, where we carved out six new F&B outlets from the space that was previously leased to a single Chinese restaurant."

The upper levels of the Keong Saik Road property could remain as a hotel or be converted to offices to optimise the large floor plate, he added.

In April, 8M Real Estate had picked up three adjoining shophouses at 28, 30 and 32 Ann Siang Road, a corner island site, for S$52 million.

It is also understood to have acquired three adjoining 999-year leasehold shophouses along Boat Quay for S$32-S$33 million. The shophouses have a total land area of about 4,000 sq ft and a GFA of around 11,500 sq ft.

One of the shophouses is tenanted; the other two are empty.

Gary Nonis, national director of retail at JLL, has been appointed to find tenants for these two units.

"We are marketing about 8,600 sq ft lettable area spanning three levels. There is also some 1,000 sq ft of outdoor refreshment area that will be leased to the ground-floor operator or operators."

The Boat Quay and Keong Saik Road acquisitions were made through sale of shares in the companies owning the respective properties; the deal at Ann Siang Road is an outright property purchase.

Including its latest buys, 8M Real Estate now has a portfolio of shophouses worth more than S$400 million. Its earlier acquisitions are in places like Gemmill Lane, Amoy Street, Tanjong Pagar Road, Neil Road, Craig Road and Hongkong Street.

8M Real Estate is owned by Mr Manchharam, together with some investors.

The Ann Siang Road property spans three storeys in addition to a basement and rooftop area. The building is named The Club and leased to Harry's Hospitality, which runs a mix of four F&B outlets and a 20-room hotel.

The lease with Harry's Hospitality has another 21/2 years to go. Its current rental reflects about 3.5 per cent net yield based on 8M Real Estate's purchase price.

Hind Group, after selling Naumi Liora, will be left with only one hotel in Singapore - Naumi Hotel in Seah Street, near Raffles Hotel.

Mr Jhunjhnuwala noted that this property has already been upgraded twice, the last time being in 2014.

He added: "This will be our flagship hotel, as we have spent tens of millions on the upgrades.

"In fact, there are plans for a further facelift so that it remains one of the top luxury boutique hotels in Singapore."

Hind Group also owns a 200-room hotel in Auckland Airport, which is being refurbished. It will be flagged as a Naumi by September.

It also owns Rendezvous Sydney Central, for which there are plans for a S$30 million upgrade to a Naumi Hotel.

Mr Jhunjhnuwala, whose family once owned the former Imperial Hotel in the River Valley/Jalan Rumbia area, said: "We are now embarking on an ambitious expansion plan and looking to acquire hotel properties globally, with investments up to half a billion Singapore dollars in the next three years.

"We are in negotiations for acquiring hotel properties in Australia, New Zealand and London. Naumi Hotels is a Singapore brand and will continue to have its headquarters here."

According to CBRE Research's analysis of URA Realis data as at Wednesday, 49 caveats totalling S$369 million were lodged for shophouse purchases in the first five months of this year.

However, this figure excludes deals for which buyers have not lodged caveats; this could be the case for those involving share sales in companies that hold shophouses.

8M Real Estate's recent purchases of the Boat Quay and Keong Saik Road properties totalling about S$108 million are instances of this.

CBRE director of capital markets Sammi Lim said: "Shophouse sales volumes and transaction values continue to hold, reflecting sustained interest in this niche asset class. Shophouses continue to be sought after due to their limited supply."

Buyers include local and foreign ultra-high-net-worth investors and family funds which are taking a mid- to long-term view.

"The pool of serious investors exploring this asset class will widen further with the entry of more boutique institutional funds exploring shophouses to add to their portfolio for diversification," she added.

Source: Business Times, 9 Jun 2017

For office decentralisation to work, supply of non-CBD space must expand to improve rental draw

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DECENTRALISATION was first mooted in Singapore in the 1991 Concept Plan. A hierarchy of commercial centres ranging from fringe, sub-regional and regional centres fanning out from the Central Area was proposed as a means to bring work closer to home and alleviate congestion in the city centre.

Fast forward 25 years and prime decentralised office stock, which has stagnated at two million sq ft since 2007, constituted just 10 per cent of total CBD prime office stock as of the end of 2016.

This can be attributed partly to the lower supply of land released for office development in the decentralised areas compared to that in the CBD in the last ten years.

In fact, the land supply released via public land sale initiatives, such as the Government Land Sales (GLS) programme for office development in the decentralised area since 2007, would hardly be sufficient to replace the older, obsolete stock, much of which has been demolished or downgraded to Grade B and below.

 

On the other hand, new CBD Grade A office supply that came on stream between 2007 and 2016 arising from public land sale initiatives almost quadrupled that of the decentralised region.

SEE ALSO: DBS selling PwC Building; deal values property at S$747m

 

The continual rejuvenation of some older CBD stock, such as Ocean Financial Centre and OUE Bayfront, further boosted Grade A office supply in the CBD.

As a result, CBD Grade A office stock doubled from 2007 to 2016.

The slower rate of growth in decentralised prime office stock compared to that of the CBD resulted in the tightening of rental gap between the two sub-markets.

While the influx of Grade A office supply in the CBD weighed down on prime rents, the limited supply of Grade A decentralised office space kept the vacancy rate low at 1.6 per cent as of end-2016 and helped rents stay resilient against downward pressure.

As the ratio of decentralised stock to CBD stock tightened from 1:5 in 2007 to only 1:10 by 2016, the rental gap between the two sub-markets narrowed from 56 per cent in 2007 to 34 per cent in 2016. This provided little incentive for occupiers to forgo the convenience and prestige of a CBD location for decentralised space.

The abundance of modern and prestigious office developments with high and efficient specifications in the CBD further drew occupiers into the CBD and away from the decentralised locations where good quality space was limited given the tight vacancy rate of 1.6 per cent as of end-2016.

Perhaps there is a lesson to be learnt from the office market in Hong Kong. There, developers have been building more office developments outside the CBD because of the lack of land. The lack of any substantial rejuvenation of existing buildings in the CBD further accentuated the large disparity in the quantum and quality of decentralised versus CBD office stock. The amount of the former has grown by about 38 per cent over the past ten years, on a square foot basis, while the total of the latter has remained largely stagnant.

The lack of new Grade A office stock in Hong Kong's CBD, coupled with the influx of Chinese firms during the 2013-16 period, drove prime CBD rents skywards.

On the other hand, the adequacy of decentralised stock in supporting demand kept the gap between decentralised and CBD prime rents at a wide margin of 67 per cent as of end-2016. The lack of new CBD prime office stock, high CBD rents and the availability of good quality decentralised office space resulted in a substantial number of occupiers moving out of CBD into decentralised office buildings.

Drawing comparisons between Singapore and Hong Kong, the availability of Grade A office stock (or the lack thereof) in decentralised locations in relation to the CBD has affected the behaviour of tenants and the movement in rents.

In Singapore, the limited rental gap of 34 per cent as of end-2016 between prime CBD and decentralised office rents reduces the motivation for tenants to relocate to decentralised buildings. Moreover, the supply of quality office space in decentralised locations is tight, with the vacancy rate at a low of 1.6 per cent as of December 2016. Should this continue, the rental gap between the two sub-markets could tighten further, discouraging relocation and dampening Singapore's decentralisation efforts.

Any increase in the supply of decentralised office space, while at the same time moderating supply in the CBD, could help to widen the rental gap from the current 34 per cent.

In our view, a rental gap of at least 60 per cent would be needed to provide a sufficient cost-saving incentive for businesses to consider decentralised office locations. This, coupled with space efficiency, modern specifications and the green credentials that come with the new stock, particularly if they are located within or in close proximity to transportation nodes, could tip the balance for corporate occupiers in opting for decentralised over CBD locations for part or all of their business functions and where a CBD address is not of great importance.

The adoption of a mixed-use development format (in particular, office and retail) would further elevate the attractiveness of decentralised offices and provide a win-win formula for all stakeholders. Office and retail uses are complementary as the availability of supporting services and amenities in the retail space would provide convenience for office workers who in turn would form a natural shopper catchment for the retail and F&B businesses.

For developers, mixed-use projects reduce the development and investment risks, while from the planning point of view, the availability of mixed-use developments lowers the propensity to develop a large number of supporting amenities in the nearby vicinity, thereby allowing efficient allocation of land resources.

In conclusion, for decentralisation to reach its full potential, it is necessary for Singapore to increase the supply of such space so that a compelling rental gap can be attained to motivate businesses to relocate. The adoption of the mixed-use development format (e.g. office/retail) and ensuring that they are located within or in close proximity to transportation nodes would further ensure a winning formula.

At the end of the day, the availability of a diverse range of office space and locations at varying price points would be a magnet drawing more businesses to set up in Singapore.

Source: Business Times, 24 Mat 2017

Office Deals Drive Singapore Real Estate Investment Sales Up 67.4% Year On Year In Q1: JLL

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The value of Singapore real estate investment deals jumped 67.4 per cent in the first three months of 2017 to S$4.99 billion from S$2.98 billion in the year-ago quarter, according to a report by property services firm JLL on Monday (May 8).

The quantum however was 40.9 per cent lower than the S$8.44 billion worth of sales made in the previous quarter. Market activity was dominated by the private sector with the S$4.47 billion concluded accounting for almost 90 per cent of all of the first quarter's total sales value.

JLL said the office sector was the star performer and the only sector that posted quarter on quarter growth. It accounted for 47.5 per cent of private investment sales in the first quarter.

Said Ms Tay Huey Ying, head of research & consultancy at JLL Singapore: "In all, investors injected about S$2.12 billion worth of capital into the sector in the first quarter. This not only represented a 60.6 per cent quarter on quarter jump from the preceding quarter's S$1.32 billion, it was also the highest first quarter private sector office investment sales value amassed since 2008 when two billion-dollar deals involving One George Street and Singapore Power Building propelled sales to S$3.41 billion."

The top two office deals in the quarter involved the sale of entire buildings: The entire interest in the holding company of PwC Building was sold to an indirect subsidiary of Manulife Financial Corporation for S$760.60 million, while the entire interest in Plaza Ventures, the registered owner and developer of GSH Plaza, was sold to Hong Kong-listed Fullshare Holdings for S$725.21 million.

Private sales of residential properties worth S$5 million and above apiece fell 35.3 per cent quarter on quarter to S$1.69 billion, although this still placed the sector on the second spot on the quarter's private sector investment sales chart with a 37.7 per cent market share.

Private sales of S$5 million and above retail and industrial properties slipped more than 50 per cent quarter on quarter and each accounted for less than 10 per cent of the quarter's private sector investment sales. Sales of hotel and mixed-use properties remained muted, with no known major transactions in the first quarter.

Source: Straits Times, 8 May 2017