Suntec office deals see revival after drought in 2014

But overall office investment sales in Singapore remain tepid

SUNTEC City has seen a revival in office transactions this year, reflecting a bridging in buyers' and sellers' price expectations after an absence of deals last year, when the office market was in runaway phase as one market watcher put it.

CBRE Research's caveats analysis of URA Realis data shows that so far this year, there have been six deals totalling S$169.12 million. In 2013, there were 12 deals that added up to S$185.85 million. In 2012 there were eight transactions at S$96.86 million.

The average per square foot price achieved has risen from S$1,745 psf in 2009 to S$2,641 psf in 2013 and S$2,774 psf so far this year.

While part of the reason for the increase in the average price between 2013 and 2015 would be due to the height of floors transacted, office values at Suntec City have also appreciated.

Earlier this month, Maybank Kim Eng Properties sold three floors, Levels 12, 13 and 39, at Suntec Tower Two to Suntec Real Estate Investment Trust for S$101.56 million under a sale-and-leaseback arrangement. The price works out to S$2,648 psf based on the total strata area of about 38,352 sq ft and a net property income yield of about 3.9 per cent.

Suntec City is on a site with a balance lease term of around 72 years.

In another transaction, in September, Level 33 of the same tower changed hands at S$30 million or S$2,534 psf. The deal, brokered by CBRE, also involves a leaseback arrangement.

A seasoned local property investor is said to have picked up the floor from a unit of Sarawak-based Samling Group.

At Suntec Tower One, three strata units on the 41st floor were sold in March for a combined sum of nearly S$28.8 million; the prices of the units were S$2,600 psf, S$2,850 psf and S$3,009 psf. The buyer is a company owned by two Singaporeans.

John Lim, group CEO of ARA Asset Management Limited, a subsidiary of which manages Suntec Reit, said: "Strata offices are still popular in Singapore. There are a lot of family offices and companies that want to buy for their own use or investment and we find that strata offices that are well managed have pretty high occupancy."

Mr Lim also highlighted that the revamp of Suntec City's retail mall and convention centre was completed earlier this year. Compared to a standalone office development, Suntec City's offices offer a more attractive proposition to buyers because of the shopping and car parking facilities in addition to MRT connectivity, he added.

The absence of office deals in Suntec City in 2014 was probably due to the general runaway office market in Singapore. "Some owners may be reluctant to sell amid such buoyant conditions, on expectations of further price gains," he reckoned.

This year, however, the outlook is more uncertain, he added. Office rents have started to soften and with significant supply completion on the horizon, "there is a better match between sellers' and buyers' expectations" - translating to deals, added Mr Lim. Suntec Reit is the biggest owner of offices at Suntec City. It holds all of Towers Three and Four and part of Tower Two.

Sammi Lim, associate director, investment properties, at CBRE, too said: "The buyer-seller price gap has narrowed. There are genuine parties - seeking office space for their own use or as a long-term investment - keen on Suntec City provided sellers' expectations are reasonable."

Some owners have held office space at Suntec City for several years and stand to reap a decent return from selling at current levels. "A lot of sellers are companies for which property is not a core business. So they are open to divesting their office space and reinvesting the proceeds into their main business," said Ms Lim.

Knight Frank executive director Mary Sai said that many owners at Suntec City are still calling for prices in the S$3,000-3,500 psf range. "But this is difficult to match with the expectations of buyers, who are more receptive to a price of S$2,500-2,800 psf - taking into account that rents are weakening and there is a large supply pipeline amid rising interest rates."

While office deals at Suntec City have picked up this year, said Savills Singapore research head Alan Cheong, office investment sales activity on the whole remains subdued.

"In addition to the weaker office market fundamentals, Chinese buyers have been affected by the impact of the slowdown in China's economy."

Source: Business Times, 25 Nov 2015