A TIE-UP between GuocoLand and its Hong Kong-listed parent Guoco Group is poised to build a plush office, residential and retail project near City Developments-IOI's South Beach - putting Malaysian tycoon Quek Leng Chan's project near that of his City Developments (CDL) cousin Kwek Leng Beng's.
The Urban Redevelopment Authority tender for the two-hectare Beach Road commercial site, which closed on Thursday, drew five bids. GuocoLand-Guoco Group's S$1.622 billion top bid works out to S$1,706.30 per square foot per plot ratio (psf ppr).
Property consultants such as ZACD Group's executive director Nicholas Mak described the top bid as "very bullish"; it is 60 per cent higher than the S$1,069 psf ppr that a CDL-led consortium paid for the South Beach site a decade ago.
GuocoLand-Guoco Group's top bid for the Beach Road site also surpasses the S$1,689 psf ppr that IOI Properties paid last November for the white site along Central Boulevard, a more choice location in the Marina Bay area. But Savills Singapore research head Alan Cheong offered an alternative perspective. He said that, on a base-case scenario where GuocoLand does an all-office project, the breakeven cost would be about S$3,000 psf on net lettable area for a new AAA-grade office development.
"Once the tenancies are stabilised, the developer can get away with a monthly per-square-foot average rent in the low teens and still achieve net yield of about 4 per cent - above current market returns."
The GuocoLand-Guoco Group's bid was 3.2 per cent higher than the second-highest bid of about S$1,654 psf ppr by Kingsford, the owner of which hails from China.
A consortium led by the Riady family-controlled OUE submitted the third-highest bid - about S$1,526 psf ppr; Japura Development, linked to Li Ka-shing's Cheung Kong Holdings, offered S$1,477 psf ppr for the site, and Far East Organization, one of Singapore's most established property groups, placed the lowest bid, S$1,362 psf ppr.
Said Mr Cheong of Savills: "The market is sending a very strong signal that developers want to be in the CBD when it comes to offices."
JLL's head of research and consultancy in Singapore, Tay Huey Ying, said the tender result is a reflection of developers' bullish outlook on the Singapore office market.
Optimism is riding high in the office investment sales market, on the back of the nascent recovery in the leasing market. "Including today's tender, JLL estimates that in the year to date, office investment sales (including land) amount to S$8.6 billion, up 50 per cent from S$5.7 billion in the year-ago period.
"This, in turn, has been underpinned largely by the strengthening CBD Grade A office leasing market."
Market watchers noted that GuocoLand's success at its Tanjong Pagar Centre mixed-development project would have spurred it to hand in a bold bid for the Beach Road site.
CBRE's head of research for Singapore and South-east Asia Desmond Sim said he would not be surprised if GuocoLand includes a residential component for the Beach Road project, since the additional buyer's stamp duty is not payable for the site as it is zoned "commercial".
A back-of-the envelope calculation by BT shows that, after factoring in the minimum office and maximum retail quantums allowed, GuocoLand could build about 270 apartments averaging 900 sq ft each.
URA has stipulated that the plot can be developed into a maximum gross floor area (GFA) of 950,592 sq ft, of which at least 665,424 sq ft (70 per cent) must be for office use. The remaining GFA can be used for additional office, retail (subject to a maximum GFA of 32,292 sq ft), commercial school, hotel, serviced apartment or residential uses.
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 office and retail components.
The developer is expected to restore the former Beach Road Police Station, a conserved building on the site, and to build an underground pedestrian link to the nearby Bugis MRT station.
The Beach Road site was first made available on the reserve list of the Government Land Sales Programme in November 2014. In June this year, the URA announced that the site had been triggered for launch, with an unnamed developer that had made a successful application, undertaking to bid at least S$1.138 billion.
CBRE's Mr Sim said: "This is the final piece of the jigsaw to establish Beach Road as a commercial node."
The future development on the site will complement the established Bugis and Suntec enclaves, as well as newer projects such as Duo and South Beach, he added.
Guoco Group is part of Mr Quek's Hong Leong Group Malaysia; his Singaporean cousin Mr Kwek helms the Hong Leong Group Singapore, which includes CDL.
Source: Business Times, 29 Sep 2017