Commercial property fervour spreads to auctions

20130125-bt-commercial-pty-fervour-spreads-to-auction-pic [SINGAPORE] The recent revival of interest in commercial properties has extended to the auctions market. DTZ's auction on Tuesday drew a packed house, and four adjoining freehold shophouses on North Bridge Road in the Kampong Glam Conservation Area found a new owner for $15 million.

The shophouses are on 5,765 sq ft of land and have a total floor area of about 9,600 sq ft.

The units are leased at a total monthly rental of $28,500 (the last tenancy runs out in late July 2014). The new owner is believed to be a property investor who is familiar with shophouses.

Bidding for the property opened at $15.3 million, but drew instead a counter offer of $13 million. Incrementally higher bids were then received with the sale finishing at $15 million. Three parties took part in the bids.

DTZ's head of investment advisory services and auction, Shaun Poh, said the event at Amara Hotel drew close to 100 people, higher than the typical crowd of 30 to 40 in recent months. "We could put more resources to offering what the market wants at auctions, i.e., commercial properties," he added.

However, another prominent commercial property at the DTZ auction, a 2,411 sq ft office unit on the 22nd floor of Shenton House, did not find takers at the opening bid (which was also the owner's asking price) of $1,888 psf. A bidder made a counter offer of $1,500 psf but this was not accepted. The unit, which is subdivided into two units, is currently leased at a total monthly rental of about $9,300. Shenton House is on a site with a remaining lease of 55 years. .

Yesterday, at an auction by Knight Frank, an HDB shophouse in Bedok North Street 3 changed hands for $1.6 million. The 1,453 sq ft unit is on a site with a lease of 84 years starting 1995.

Knight Frank executive director Mary Sai said that buying interest has increased for shop units but only for those which are better located and/or in better managed buildings.

"We're seeing more enquiries from potential buyers, but it's also very natural for sellers to raise their price expectations, looking at the pent-up demand for commercial units. Even for Queensway Shopping Centre and The Alexis, where we are doing private treaty sales, some owners have marked up asking prices by 5 to 10 per cent in the past few days as they try to catch some of the spillover demand from Alexandra Central this week," she added.

On Monday, 114 of the 115 strata retail units launched in the 99-year leasehold Alexandra Central were sold through balloting at prices ranging from nearly $4,000 psf to as high as $7,800 psf. The units launched have sizes of 108-1,109 sq ft.

Colliers International deputy managing director and auctioneer Grace Ng also reports an increase in the level of enquiries for commercial properties since the latest property cooling measures affecting the residential and industrial property markets - but not commercial properties like shops and offices - took effect on Jan 12.

The property consultancy group is holding an auction at 2.30 pm on Jan 30 at Amara Hotel that will feature, among others, three adjoining strata shops at Parklane Shopping Mall in Selegie Road. The indicative price for the ground-floor units, which add up to 1,398 sq ft, is $3.3 million. The units are leased at a total monthly rental of $11,000. Parklane Shopping Mall is on a site with a 99-year leasehold tenure starting 1974.

Also going under the hammer will be one shop lot (partitioned into 23 smaller units) on the first level of Bukit Timah Plaza, which is on a 99-year site (from 1976). The strata area is 17,351 sq ft and the indicative price is $26 million. The 23 partitioned shops are leased to operators in a variety of trades including furniture, audio equipment, a minimarket and Singapore Pools - for a total monthly rental of about $76,000.

Ms Ng notes that asking prices for commercial properties shot up last year, even before the latest revival in the sector.

"This has led to yield compression. Investors have to be careful about commercial properties and be mindful of the rentability of the property."

Today, gross yields for freehold shophouses and strata shop units have been compressed to 2-3 per cent on average, down from 3-4 per cent one or two years ago, says Ms Ng.

For 99-year properties, the yield is now around 4 per cent on average, compared with 5-6 per cent a couple of years ago.

Source: Business Times, 25 Jan 2013