Serangoon Plaza to be demolished to make way for 19-storey commercial complex

The five-storey Serangoon Plaza will soon be torn down to make way for a new commercial development, said property group Tong Eng on Tuesday (Jan 10).

Tenants have been told to move out by the end of this month, Tong Eng said, adding that all tenants have said they will be able to meet the deadline.

Mustafa, Singapore’s biggest 24-hour mall, has a branch at Serangoon Plaza and is the largest tenant there, taking up three storeys and about 70,000 sq ft. The store will be shut on Feb 1 and its merchandise transferred to the main outlet, Mustafa Centre, on Syed Alwi Road, a spokesperson said.

When asked if the company expects its revenue to be hit by the closure of the Serangoon Plaza branch, the spokesperson said sales would be “slightly affected”. Mustafa also has no plans to expand elsewhere, he added.

Built in the 1960s as President Shopping Centre, Serangoon Plaza was bought over in 1984 by Feature Development, an associate firm of Tong Eng, which then sold 10 per cent of the units. In 2013, Feature Development bought back the units it had sold for about S$40 million so that it would have the option of redeveloping the site.

The land will now be redeveloped into a 19-storey commercial development called Centrium Square, Tong Eng said. The new development will have a five-storey podium with retail space on the first and second storeys and a 14-storey tower with medical suites and offices. The retail space has been fully sold to shipping company Canali Logistics, it added.

Source : Channel NewsAsia – 11 Jan 2017

Three parties shortlisted for Jurong Point

Macquarie, Blackstone and Frasers Centrepoint have been shortlisted for the purchase of Guthrie and Lee Kim Tah’s space in Jurong Point mall.

The Business Times understands that Macquarie and Blackstone have each offered about S$2.2 billion – crossing S$3,350 per square foot (psf) on the 658,000 square foot commercial net lettable area owned by the equal joint-venture between Lee Kim Tah Holdings and Guthrie GTS in Jurong Point. The net yield is about 4 per cent.

Frasers Centrepoint’s offer is said to be below S$2 billion. The trio are now doing due diligence on the asset before they finalise their bids.

The three are said to be among nine parties that made submissions during an expressions of interest (EOI) exercise that closed on Nov 18.

Singapore’s biggest suburban shopping centre, Jurong Point, is connected seamlessly to the Boon Lay MRT Station and Bus Interchange.

The asset was put on the market in the fourth quarter of 2016 with a price tag exceeding S$2 billion, translating to more than S$3,000 psf.

Macquarie, Blackstone and Frasers Centrepoint all declined to comment when contacted by BT, as did Array Realty, the sole marketing agent for Jurong Point, and JLL, with whom Array worked exclusively to conduct the EOI exercise.

Other bidders who are understood to have participated in the EOI exercise include Link Reit of Hong Kong, PGIM (formerly Pramerica Investment Management) as well as some of Singapore’s big mall owners.

Private equity giant Blackstone is familiar with the Singapore property market.

Last year, it acquired a 75 per cent interest in three Singapore properties at 896 Dunearn Road, 315 Alexandra Road (next to Ikea) and 10 Jalan Kilang (off Jalan Bukit Merah) from Sime Darby; the deal valued the properties at around S$300 million. Blackstone also owns 21 Anderson Road, a 10-storey building of 34 units.

Blackstone’s Tactical Opportunities Fund was a partner in City Developments Ltd’s (CDL) S$1.5 billion profit participation securities exercise in 2014 to invest in the cashflows of CDL’s Quayside Collection asset on Sentosa Cove.

Macquarie does not own any real estate in Singapore, but has a presence elsewhere in Asia, including a big China retail portfolio.

Frasers Centrepoint Ltd group – including its sponsored shopping centre Reit, Frasers Centrepoint Trust – owns 12 malls on the island with more than two million sq ft net lettable area.

Guthrie and Lee Kim Tah are divesting a total net lettable area (NLA) of 702,000 sq ft – including 44,000 sq ft of space under the government’s Community/Sports Facilities Scheme (CSFS), which is being used by occupiers such as NTUC First Campus Co-operative’s My First Skool and voluntary welfare organisations.

There is a further space of about 59,000 sq ft under three strata retail units divested by Lee Kim Tah and Guthrie about two decades ago to Golden Village, NTUC FairPrice and POSB – taking the total net lettable area in Jurong Point to 761,000 sq ft.

The mall is nearly fully let.

Guthrie and Lee Kim Tah are offering their 702,000 sq ft in the mall through the sale of shares in companies that own this space.

BT reported earlier that the partners, having owned the property for many years, were keen to pursue new interests and opportunities. Lee Kim Tah was delisted in early 2015 and Guthrie in November 2013.

Jurong Point draws an average monthly visitorship of six million and has a catchment of 150,000 households within a five-kilometre radius, with potential for growth as the new town planned in Tengah is progressively developed.

Major tenants for the space at Jurong Point owned by Guthrie and Lee Kim Tah include FairPrice Xtra, Courts, Harvey Norman, BHG, Uniqlo and Kiddy Palace, in addition to three foodcourts.

Jurong Point stands on two sites; one has a balance lease term of about 76 years and the other, 88.5 years. Their combined land area is 557,288 sq ft.

The original Jurong Point was completed in 1995 and spans four levels of retail space (Basement 1 to Level 3). The CSFS space is on Levels 4, 5 and 6. The extension, which was completed in 2008, has three retail floors – Basement 1 and Levels 1 and 3.

About 1,000 carpark lots in Jurong Point are available for use by shoppers.

The mall’s total gross floor area (GFA) is 1.07 million sq ft; there is no unutilised GFA, but potential buyers would no doubt be looking at the possibility of raising the mall’s income by increasing the retail area and subdividing some of the anchor tenant spaces into smaller units to extract higher per square foot rentals.

Property investment sales surge to 3-year high

It’s been a banner year for big-ticket property transactions of at least S$10 million each.

As at Dec 23, the tally stood at S$22.5 billion – up 31 per cent from 2015′s S$17.2 billion, going by Savills Singapore’s figures.

CBRE and Cushman & Wakefield have similar numbers.

This year’s tally of property investment sales, as these transactions are also known, is the highest in three years and has been supported by two mega deals – BlackRock’s S$3.38 billion sale of Asia Square Tower 1 to Qatar Investment Authority and the government’s S$2.57 billion sale of a white site slated for mostly office use along Central Boulevard to a unit of IOI Properties Group.

CBRE’s data points to S$10.1 billion of office investment sales deals this year (up to Dec 20).

This gave the sector the lion’s share or 44 per cent of overall investment sales.

This was followed by the residential segment, accounting for 33 per cent or S$7.5 billion worth of transactions (supported by the Shunfu Ville and Raintree Gardens collective sales and City Developments’ profit participation securities transaction of the completed Nouvel 18 condo).

“With some key major deals out of the way in 2016, the pipeline for 2017 seems to be a shade lesser,” commented CBRE Research’s head of Singapore and South-East Asia Desmond Sim.

Property pundits say next year’s pipeline of big transactions includes Jurong Point mall and Asia Square Tower 2, each expected to fetch around S$2 billion.

The office and residential sectors will remain key drivers and analysts generally expect the overall investment sales next year to remain in the region of 2016′s level or to soften, citing the rising interest-rate environment and slowing trade in Asia if incoming US president Donald Trump fulfils his promise of pursuing a protectionist stance.

However, Colliers International managing director of Asia capital markets and investment services Terence Tang hazards a guess that 2017′s investment sales will be similar to 2016′s or possibly 10 per cent higher. “Residential will account for a bigger proportion of deals in 2017 than office – the reverse of what we have seen this year – driven by developers’ voracious appetite for replenishment land via both state land tenders and private-sector collective sales.”

Moreover, says Savills Singapore’s managing director and head of investment and residential services Steven Ming, residential developers that face looming sales deadlines stipulated under the government’s Qualifying Certificate conditions will be motivated to divest their unsold inventory through bulk sales of units or structured deals for their projects – to avoid paying hefty penalties to the state.

“Investing in high-end residential properties remains appealing given the probability of investing at below replacement cost,” he noted.

Meanwhile, Colliers’ Mr Tang said the Singapore office sector remains on the maps of global and regional investors because of the high quality of buildings completed over the past decade and the covenant strength of tenants in these developments.

However, further interest-rate hikes are on the cards while office rents and occupancies will continue to come under pressure next year.

“So investors will demand higher yields – but owners may not be willing to let go of their assets at lower prices, at least in the near term,” said Mr Tang.

Cushman & Wakefield Singapore research director Christine Li observes that this mismatch in pricing and yield expectations between buyers and sellers was already evident in office deals this year.

Private-equity funds, which had been the more active buyers of commercial property in the past, took a backseat as a result. “Instead, non-traditional buyers such as the ultra high net worth families and sovereign wealth funds (SWFs) led the buying this year.”

In a similar vein, Savills’s Mr Ming predicts that SWFs and insurance companies are likely to dominate big-ticket office purchases in the next 12 months. “This is because of the expected protracted compressed yield environment which makes them more competitive investors given their lower capital costs, and the continued attraction of Singapore as one of Asia’s safe harbour markets to be invested in.”

As office rents generally are expected to continue softening in 2017 as the sector faces the brunt of an oversupply and a weakened economic outlook, this could draw new capital into the sector in anticipation of lower prices.

“But the resultant intensified buying competition amid a finite saleable inventory will likely keep capital values stable,” suggests Mr Ming.

Both CBRE and Savills expect total investment sales in 2017 to be in the S$18-S$20 billion region – down from this year’s high base, marked by mega deals.

Ms Li of Cushman said the figure could remain in the S$20 billion range.

Mr Tang highlighted that the Chinese government’s general policy to discourage outflow of capital to stem a further fall in the yuan may slow Chinese investment into Singapore real estate.

Further interest-rate hikes are also seen as a dampener on property deals in 2017, which may result in some investors adopting a wait-and-see position, especially if they wish to first see whether Mr Trump will actually implement the protectionist policies he championed during his election campaign.

On the flip side, argues Mr Tang, “Mr Trump’s policies are also expected to create a more inflationary environment – during which typically, people tend to go into real estate for a hedge”.

A weakening Singapore dollar is also expected to attract foreign investors to Singapore properties.

CBRE’s data compiled on Dec 20 showed that so far this year, investment sales of office properties have more than doubled to S$10.1 billion from S$4.2 billion last year.

Residential property deals have expanded 42.7 per cent to S$7.5 billion from S$5.2 billion. Investment sales of industrial property have also climbed 42.8 per cent to S$2.7 billion from S$1.9 billion previously.

On the whole, investment sales that originated from the public sector have dipped 0.7 per cent to S$5.8 billion this year while transactions originating from the private sector have risen 41 per cent to S$17.1 billion, going by CBRE figures.

As a result, the public sector’s share slipped to 25.4 per cent in 2016 from 32.5 per cent last year.

“This was due to a cutback in Government Land Sales sites,” said Mr Sim.

‘New’ office leases make up only 10% of the total this year: Cushman

AS YET another sign of tough times facing businesses, new office leases this year – by companies that previously did not have a presence here or were not in the building where the new lease is inked – made up only 10 per cent of all office leases inked this year, down from 20 per cent in 2015.

Relocation leases accounted for a significant 63 per cent of the leases, while the balance 27 per cent are renewal leases, based on Cushman & Wakefield’s lease profile analysis.

Its research director Christine Li noted that the stark drop in new leases this year coincided with a cautious business mood as the economy battles headwinds in the banking, oil, and commodities sectors.

Savills Singapore research head Alan Cheong flagged that the technology sector, while still growing rapidly, is unable to make up for the shrinking of office space by troubled sectors. “With a glacial pace of growth anticipated for 2016-2017, net new demand in the near term will be weak,” he said.

Going by the lease profile this year, signs of growth tapering off in the technology sector have emerged.

Technology companies’ share of the office leases inked this year dived to 14 per cent from 33 per cent last year as fewer large-scale tech companies were expanding; the share of finance companies slipped to 24 per cent this year from 36 per cent, while the share of professional/business services firms surged to 17 per cent from 5 per cent as many of these firms are relocating to new office buildings.

Another area of concern is that more than half of the new leases this year were supported by serviced office and co-working players, particularly in the new office developments, Ms Li noted.

These included Regus’ taking up of 12,940 square feet of space in DUO Tower, 20,000 sq ft in Guoco Tower, and 25,000 sq ft at 410 North Bridge Road (Cosmic Insurance Building). JustGroup is occupying some 40,000 sq ft at the former UIC Building for serviced offices and 34,000 sq ft at Marina One for co-working space. The Working Capitol said this month that it is taking up about 55,000 sq ft across 11 floors at 140 Robinson Road – this deal is not included in the Cushman & Wakefield study.

CBRE executive director for office services Michael Tay noted that the full potential of co-working space remains unclear but “with everyone jumping into it, there is always be a concern that there will be a consolidation at some point”.

Noting that the qualities of co-working operators are varied, ranging from some providing a holistic startup community and support services to those that only sell membership for the use of space, Mr Tay said he expects to see mid to long-term consolidation in this sector. The TMT (technology, media and telecommunications) sector may also be primed for some short-term consolidation.

But with quality office space commanding a smaller rental premium this year than before, many office occupiers were prompted to capitalise on a soft rental market to move to better buildings in a “flight-to-quality”.

Some 77 per cent of the relocating tenants signed leases with higher rents on a per square foot (psf) basis, while some 21 per cent of these tenants signed leases with lower rents. About 2 per cent of the tenants signed leases at the same rents as before.

Cushman & Wakefield estimates that a majority of relocating tenants had in 2015 inked leases with rents that were up to S$5.50 psf per month higher than what they were paying before; for the leases signed this year, most relocating tenants have to pay only up to S$2 psf per month more at the new premises.

Ms Li noted that such rental premium would have ranged from S$3-4 psf per month – usually for the movement from Grade-B or C buildings to Grade A-plus buildings – in a landlord’s market.

DBS vice-president for group equity research Derek Tan felt that some tenants may be upgrading to a better location as their renovation costs and fit-outs in existing premises are fully depreciated. They may also be motivated to do so in a bid to attract talent as the millennial workers seem to prefer prestigious office addresses and funky office spaces.

Possibly due to softening rents and an anticipation of rents bottoming out in the future, most office tenants are taking up more space as they signed relocation leases.

Among such leases, some 79 per cent showed an expansion of space requirements, while 13 per cent involved space contraction; the remaining 8 per cent opted for the same amount of space in the new location they are moving into.

Consequently, there was a net increase of 205,000 sq ft of space requirement among tenants that occupy at least 5,000 sq ft, according to Cushman & Wakefield. On average, such tenants took up 8,200 sq ft more space when they signed relocation leases this year, compared to those that took up 6,300 sq ft more space on average last year.

Explaining why a majority of relocating tenants are expanding their spaces, Knight Frank head of office Calvin Yeo said many relocate because they need more space in anticipation of future business activities but are unable to find that additional space in their existing buildings.

Still, with many of them moving into buildings with larger floor plates and higher efficiency, the increase in space requirements would be lower than if they had remained in their existing buildings, he added.

Prime office rents: No reprieve in sight for 2017

The “flight-to-new projects” – a term used by the office leasing sector to describe the trend of tenants swarming into swanky new office projects – is set to continue next year as companies capitalise on softening rents to upgrade their working spaces.

This merry-go-round, however, is causing pain to landlords of older buildings in the Central Business District (CBD). Based on analysts’ projections, overall prime CBD office rents may fall by up to 10 per cent next year.

But capital values may still hold up amid keen interest for office assets from private capital and the infrequency in office transactions in the tightly held sector.

Said Cushman & Wakefield research director Christine Li: “If the current global macroeconomic and local micro-market dynamics continue to prevail, average office rentals are expected to soften in the short term due to supply pressures with DUO Tower, 5 Shenton Way (UIC Building) and Marina One completing over the next six months or so.”

Overall gross effective rents of CBD Grade-A office are expected to drop by up to 5 per cent next year, after an estimated 8.4 per cent decline to around S$8.50 per square foot (psf) per month this year, Ms Li said.

Savills Singapore is expecting a rental decline of about 10 per cent next year for the CBD Grade-A offices that it tracks, which cover those with multinational tenants and floor plates of at least 10,000 sq ft per floor, after an estimated 5 per cent drop in rents this year to S$8.85 psf per month; CBRE is projecting a 5-10 per cent fall in Grade-A office rents in “CBD Core” in 2017.

Consultancies derive these estimates by tracking a basket of prime CBD offices – each varying from one firm to another. JLL, which tracks investment-grade assets in the CBD, is expecting a smaller 6.6 per cent drop in rents next year as the new supply is gradually absorbed, after a 9.9 per cent fall in 2016.

The office rental index of the Urban Redevelopment Authority (URA) for the Central Region (a wider region that includes fringe areas outside the central area) registered a 6.6 per cent drop over the first three quarters of this year, after a 6.5 per cent drop for the whole of last year. It was 13.2 per cent below the last peak in Q1 2015. Office prices in the same region slipped a smaller 2.2 per cent over the first three quarters this year.

Net take-up of office space in Downtown Core (covers CBD, City Hall, Bugis, and Marina Centre) tracked by the URA during the first three quarters – going by change in occupied space – was nearly 183,000 sq ft, a 69 per cent drop from the year-ago period; the historical average from 2011 to 2015 was around 940,000 sq ft. There is typically a lag from lease commencement to the time tenants move into the new premises.

Savills Singapore research head Alan Cheong believes that annual net take-up of CBD Grade-A office may drop to around 500,000 sq ft in the next five years unless new growth drivers step up fast to fill the gap left by beleaguered industries.

Already, the office leasing market this year has been largely driven by relocations rather than new leases. The former made up 63 per cent of all office leases inked to-date, from 37 per cent last year, based on Cushman & Wakefield’s analysis.

JLL head of research for South-east Asia Chua Yang Liang noted that as pre-leasing activity for the new supply such as Marina One, DUO Tower, and UIC Building started around 2015 and 2016, landlords of existing developments are under pressure to keep existing tenants, let alone attract new ones, and this pressure will persist into 2017.

Guoco Tower, which received temporary occupation permit (TOP) in September, hit 85 per cent in occupancy rate for signed leases and those under advanced negotiations. It is said to be bucking the market trend, with asking rents inching above S$10 psf per month in some cases as the landlord GuocoLand fills up the higher floors.

DUO Tower and Marina One, both developed by M+S, are said to have both reached over 30 per cent in pre-lease commitments for office space, according to brokers.

Among the latest relocation leases, BP is said to be moving to Marina One, where it is taking up 70,000 sq ft and letting go of a similar amount of space at Keppel Bay Tower.

Over at 5 Shenton Way, the former UIC Building has secured serviced office provider JustOffice and Japanese shipping group Mitsui OSK Lines, which are taking 40,000 sq ft and 68,000 sq ft respectively.

Based on Savills’ estimate, from Q4 2016 to 2018, around 926,000 sq ft of CBD Grade-A “secondary space” will be freed up by relocating tenants. Together with the available secondary space of 305,000 sq ft carried over from the previous periods, there will be a total of some 1.23 million sq ft of secondary space to be absorbed.

Close to 3 million sq ft in CBD office gross floor area (GFA) is slated to come onstream next year, after some 2.3 million sq ft of office GFA was completed this year, according to Knight Frank.

The relocation story is expected to continue unfolding next year as the upcoming Frasers Tower at Cecil Street is ramping up interest ahead of its completion in 2018 while Marina One and DUO Tower are still filling up their remaining space, said its head of office Calvin Yeo.

Knight Frank is guiding for a 6-9 per cent rental fall for Grade A and Grade A-plus offices in Raffles Place and Marina Bay office precinct next year, following a 10.5 per cent drop in gross effective rents to S$8.87 psf per month this year.

Most analysts believe that any rebound in office rents will come only in 2018. How soon office rents will turn the corner will depend on when net office demand picks up, said DBS vice-president for group equity research Derek Tan. He is projecting a 5-10 per cent drop in office rents in 2017 as net demand stays flat or marginally positive as companies move from older offices to newer ones.

Maybank Kim Eng analyst Derrick Heng said he sees a 5.6 per cent drop in Grade-A office rents next year on the back of rising vacancies before a slight rebound of 2.4 per cent in 2018. But ample liquidity in the market and keen interest in office buildings should keep capitalisation rates or the rate of return on the property tight.

Capital value estimates for CBD Grade-A office still fall within the S$2,300-2,700 psf range for next year. Judging from the recent enthusiastic bidding of the Central Boulevard “white” site in the government land sale programme and the sale of prime buildings such as Asia Square Tower 1 and 77 Robinson Road, institutional investors are confident of the long term fundamentals in the Singapore office market, Dr Chua said, projecting a 4.3 per cent slide in capital values next year.

According to Mr Tan of DBS, the average 3-3.2 per cent capitalisation rates in office transactions – versus the 3.75-4 per cent used by valuers in deriving capital values for most office landlords – suggests that capital values should remain stable.

Uber expands its footprint in Singapore

Ride-hailing giant Uber Technologies Inc is expanding its footprint in a big way in Singapore.

BT understands that it has leased about 55,000 sq ft on Levels 35 and 36 of Guoco Tower.

This is more than double the 20,000 sq ft that Uber is currently leasing at the nearby Mapletree Anson, where Uber’s Asia-Pacific regional office is based.

Sources say that for the past month or so, Uber has been operating at Guoco Tower within serviced offices run by Regus, on the 14th floor.

This arrangement is expected to continue until March next year, subject to Uber completing the fit-out of its space on Levels 35 and 36 in the building.

Uber is said to have signed the lease at Guoco Tower because there was no space for it to expand within Mapletree Anson.

Uber and GuocoLand, the developer of the Tanjong Pagar Centre mixed development (which includes Guoco Tower), declined to comment.

Industry players are wondering if Uber will seek to sublet/find replacement tenants for the space it has leased at Mapletree Anson or retain the space to cater for future expansion of its business in Singapore and the region.

Cushman & Wakefield Singapore research director Christine Li said: “Following Uber’s retreat from China, where it has been reported to have lost at least US$2 billion (S$2.88 billion) over two years, the group may be thinking of expanding more aggressively in other parts of Asia, including Southeast Asia. And Singapore would be a natural springboard.”

Morever, say other market watchers, Uber is expanding beyond the transportation business into lifestyle, logistics and a host of other activities – powered by the Uber app and leveraging its network of drivers, cars and customers.

An early example is UberEATS, an on-demand meal delivery service.

Edmund Tie & Company’s chief executive, Ong Choon Fah said: “Tech companies like Uber collect a huge amount of data and with that data they can venture into so many areas. For instance, Uber can play a big role in last-mile connectivity for people as well as in e-commerce delivery of goods/services – especially during what is now non-peak hours for its network of drivers and their vehicles.

“All this expansion will be powered by technology.”

Ms Li commented that “Guoco Tower came on the market at an opportune time, when some of these tech unicorns (including Uber) need large quality space to gear up for future expansion in the Asia-Pacific region”.

Uber is understood to have signed a three-year lease for the two floors at Guoco Tower, with an option to renew for a further three-year term.

It will be paying a gross effective monthly rental of more than S$9 per square foot.

This is above the high-S$7 to mid-S$8 psf range that other large tenants in the building negotiated earlier this year or late last year.

Besides landlord GuocoLand firming office rents as it filled up more and more of the building, another reason for the higher rent is that Uber is taking higher floors.

Guoco Tower, the 890,000 sq ft office component of the Tanjong Pagar Centre mixed development, spans the lower 38 levels of a 64-storey tower. Above the offices is the 181-unit Wallich Residence.

Other big tenants in Guoco Tower include Dentsu Aegis Network (around 100,000 sq ft), ING (about 70,000 sq ft) and Itochu Singapore.

BASF selling five office floors at Suntec Tower One for S$129.3m

FIVE office floors in Suntec Tower One are changing hands for a total sum of S$129.3 million, which works out to S$2,400 per square foot on strata area of 53,863 sq ft, based on caveats data.

The five floors – Levels 24, 25, 34, 35 and 36 – are being sold by BASF South East Asia, a part of German chemicals giant BASF, which currently occupies the space.

The floors are being bought by companies which are believed to be linked to the Singapore-based ARA group. Suntec City is on a site with a balance lease term of around 71 years.

BASF – which is involved in a broad range of areas from chemicals, plastics, performance products and crop protection products to oil and gas – is expected to lease back at least some of the space it is selling.

The Business Times could not reach officials at BASF in Singapore as well as ARA on Thursday.

Savills Singapore, which is understood to have brokered the transaction, declined to comment.

BASF is headquartered in Ludwigshafen, Germany. In 2015, the group posted sales of 70 billion euros (S$106 billion) and income from operations before special items of around 6.7 billion euros, according to information on its website.

Market watchers note that the S$2,400 psf pricing for the Suntec City office space in the latest deal is lower than the S$2,648 psf achieved in November 2015, when Maybank Kim Eng Properties sold three floors, Levels 12, 13 and 39, at the adjacent Suntec Tower Two to Suntec Real Estate Investment Trust (Suntec Reit) for S$101.56 million under a sale-and-leaseback arrangement. That transaction involved a total strata area of about 38,352 sq ft and a net property income yield of about 3.9 per cent.

CBRE director of investment properties Sammi Lim said: “The latest transacted price on the surface appears to be a lower per square foot rate than the deal a year ago, especially given that the floors in the recent transaction are on higher levels. However, given the total deal quantum, such bulk discount is considered fair by industry standards.

Differences between the structures of the two deals may also have affected the pricing, she added.

Suntec Reit is managed by ARA Trust Management (Suntec) – a fully owned subsidiary of ARA Asset Management. The Reit owns Suntec City mall, the whole of Suntec Towers Four and Five and some office units in Suntec Towers One, Two and Three, along with a 60.8 per cent effective interest in Suntec Singapore Convention & Exhibition Centre (Suntec Singapore). It also has a one-third stake in One Raffles Quay and a one-third interest in Marina Bay Financial Centre Towers 1 and 2 and the Marina Bay Link Mall.

While some industry observers suspect that Suntec Reit may be involved with the latest purchase of the five floors being sold by BASF, others suggest the buyer is more likely to be a private fund managed by ARA Asset Management.

ARA Asset Management recently completed the purchase of a 50 per cent stake in Capital Square from Alpha Investment Partners for S$475.5 million; the deal valued the entire building at S$951 million or S$2,450 psf.

Capital Square is on a site with about 78 years balance lease term.

Retail property investment sales surge in Q4

The total value of big-ticket retail properties that have changed hands so far this quarter has surged to S$731.3 million, up 22.4 per cent from S$597.4 million in the preceding quarter and more than double the S$320.3 million in Q4 last year.

This tally as at Dec 8, compiled by Savills Singapore, was based on deals of at least S$10 million originating from the private sector.

Perennial Real Estate Holdings and Singapore Press Holdings’ S$265.5 million acquisition of an additional 60 per cent stake in a partnership holding Chinatown Point mall and four strata office units above it has been the biggest deal so far this quarter.

Also boosting the Q4 number was Master Contract Services’ S$250 million acquisition of the lower three levels of the four-storey Heartland Mall-Kovan and two strata retail units in Havelock II near Chinatown from a fund managed by Alpha Investment Partners.

Cityvibe, near Clementi MRT Station, also changed hands recently for S$71 million.

Despite the strong investment sales numbers for retail property since October, Savills said the year to date figure of S$1.837 billion is just 3.3 per cent higher than the S$1.778 billion for last year. This was due to the lower numbers in the second and third quarters of this year against their respective year-ago periods.

Market watchers are keenly awaiting a major retail property transaction in the first quarter of next year: Jurong Point. Singapore’s biggest suburban mall, with a price tag of over S$2 billion or more than S$3,000 psf on commercial net lettable area, is understood to have garnered strong interest during an expressions of interest exercise that closed on Nov 18.

Commenting on 2016′s performance, Savills Singapore’s managing director and head of investment and residential services, Steven Ming, said: “Investors, because they are faced with a limited supply of investible assets, are progressively willing to accept lower and lower yields. In Q3 2015, the appraised net yield for prime Orchard Road retail malls used to be 3.9 per cent; by Q3 2016, this had fallen to 3.6 per cent.

“The same trend is expected for suburban malls and HDB retail properties.”

Savills brokered the recent sale of the three levels of Heartland Mall-Kovan and the two units at Havelock II. It also brokered Alpha’s S$151 million sales of four HDB shop units in Ang Mo Kio, Bukit Merah Central, Clementi and Toa Payoh to Lian Beng Group; the deal was entered into in Q3 and completed last month.

Colliers International managing director of Asia capital markets and investment services Terence Tang noted that retail property in Singapore offers higher yields than offices, residential property and hotels. “Industrial properties offer higher yields but investing in land leased by JTC is highly regulated,” he noted.

Mr Tang also observed that rentals in suburban malls are more resilient as these malls cater to the daily needs of the masses living in the neighbourhood.

Mr Ming said that investors in the Singapore retail property segment have thus far not been entirely perturbed by the headwinds facing retailers here. “Even if tenants are facing a litany of issues including higher labour costs and online competition, well-located shops are still reporting low vacancies.

“There is ready demand from potential tenants if rents are tweaked to reflect market conditions. Investors therefore have relatively certain cash flow, which helps them to manage their loan repayment risks,” said Mr Ming.

Savills Singapore research head Alan Cheong acknowledged that passing yields for retail malls are higher than those for the office, hotel and residential sectors; moreover, residential property investors are saddled with the additional buyer’s stamp duty and seller’s stamp duty.

“The disadvantages of retail real estate is that it requires greater amount of asset management in keeping the malls or space well positioned to remain relevant to tenants and patrons. Therefore the degree of care in managing a mall is much greater than for the other real estate asset classes.”

The Work Project is official co-working partner of OUE’s Downtown Gallery

THE Work Project – a Hong Kong-based co-working space operator – is the official co-working space partner of Downtown Gallery in OUE Downtown, OUE’s upcoming mall located at 6 Shenton Way, The Business Times has learnt.

It will fill the entire fourth floor of Downtown Gallery – that is, 20,000 square feet of space – and is set to deliver a new concept here of workspaces designed for the future workforce.

Junny Lee, founder of The Work Project, told BT: “We recognise that the co-working industry is growing, but we are completely different from competitors in the region. For one thing, we are sited at the heart of a mixed-use development – this gives our members access to a wide range of food and lifestyle facilities, right at their doorstep.”

Co-working spaces here – which have multiplied in the last few years – are mostly located in shophouses, serviced apartments or office buildings.

Downtown Gallery was unveiled (in July) as part of integrated development, OUE Downtown, which comprises serviced residences, and retail and office spaces. Tenants of Downtown Gallery will include a farmer’s market by The Providore, boutique fitness studio GuavaLabs, and a pre-school run by Mulberry Learning Centre.

Mr Lee said The Work Project’s aspirations are entirely in line with those of Downtown Gallery – representing the future of luxury, wellness and bespoke. “We are Office 2.0. Our workspaces are created with the individual in mind, and are multi-sensory, with thought put into how they look, smell and sound. This drives productivity and work happiness.”

He added that The Work Project will offer unprecedented flexibility. Businesses can choose between hot desks and private offices, and any start date or booking period (on a monthly or even daily basis). “Members don’t need to be married to a space. We offer a truly flexible environment where they can work according to what task they want to get done on any day.”

Notably, The Work Project is modelling itself after the hotel industry, allowing interested businesses to first check out available spaces and pricing via its website instead of making an instant booking. Rates may fluctuate month to month depending on demand. Mr Lee said: “We want to be transparent, by providing full information on all our rates and inventory.”

In Hong Kong, where The Work Project first opened (in September), an individual hot desk costs about HK$300 (S$55) a day on average, and a private office for two starts from HK$13,905 a month. The co-working space is sited in Midtown Soundwill Plaza II at Causeway Bay, and has 74 private offices and 80 hot desks across four floors.

When asked why Hong Kong was picked as the first city, Mr Lee cited “extraordinarily high” office rents. “We feel we can really add value in Hong Kong, where office leases are among the most expensive in the world. The Work Project not only offers a flexible solution, but value for money for businesses and entrepreneurs.”

According to the South Korea-born entrepreneur who became a Singapore citizen 31/2 years ago, the average rent paid by companies per employee in Hong Kong is about HK$9,000 a month. But with The Work Project, that can go to as low as HK$6,600 a month for 10 employees, based on a configuration of a six-person private office and four hot desks.

Rates for The Work Project in Singapore are being finalised. Downtown Gallery will mark its second space globally. Mr Lee said that when full, it can host 350 members. Its target tenants are companies that are “part of the knowledge economy”, such as those in consulting, design, branding, advertising and public relations.

Patrina Tan, senior vice-president for retail, marketing and leasing at OUE, told BT: “What we are trying to do is build an ecosystem with all our partners in this semi-retail development that is Downtown Gallery. For instance, members of The Work Project can get discounts at in-mall amenities such as gyms and restaurants.”

She added that Downtown Gallery seeks to transform the way people live, work and play. “Innovating is essential to our goal of injecting vibrancy into the retail landscape, and we welcome the opportunity to work with more partners like The Work Project who share our vision.”

Downtown Gallery will open its doors in the first quarter of 2017.

Homegrown firm JustCo looks to ‘super-size’ co-working spaces in Singapore

Homegrown space provider JustGroup is rapidly scaling up its presence in the segment of co-working spaces, with plans to open two new shared offices in the heart of Singapore’s Central Business District (CBD) next April.

Its co-working brand JustCo currently offers 50,000 square feet of space at two locations – 120 Robinson Road and 6 Raffles Quay. With a combined floor area of more than 100,000 square feet, the upcoming facilities at UIC Building and Marina One will more than triple the company’s footprint in the burgeoning real estate segment in Singapore.

Spanning approximately 40,000 square feet across two levels, the new space at UIC Building will have up to 1,000 desks, as well as features for various work purposes including quiet pods, stand-up meeting rooms and an event space with tiered seating arrangements.

Apart from these, Channel NewsAsia understands there will also be special facilities such as a Venture Lab where early-stage start-ups can meet representatives from larger businesses and prospective investors, as well as a Silicon Valley-style project space for companies to brainstorm and develop their ideas before testing out prototypes.

For the space at UIC building, the first storey will open in April while the second storey is slated for its official launch in November 2017.

Over at Marina One, the new location will be fitted with approximately 500 working desks, making it the largest single-storey co-working space locally, according to JustCo. Its location at the heart of the Marina Bay financial district will also offer a “unique opportunity” for businesses of various sizes “to set up in a prestigious location that previously would have been reserved for the large corporates”, said founder and CEO Kong Wan Sing.

On why the firm has decided to “super-size” its presence with two new mega shared offices in the pipeline, Mr Kong told Channel NewsAsia: “The demand for co-working in Singapore is growing rapidly so we’re increasing our space to meet the demand. Plus, there is a shift in the types of companies using co-working space to bigger and well established companies so we’re expanding our offering by adding prime buildings and locations like Marina One.”

In addition, Mr Kong believes that the physical expansion will expedite the growth of its community, therefore offering its members a bigger network to tap into. “New members are instantly connected to a network of individuals and businesses who can help them expand, find new clients, partner up or connect with investors,” he added.

Industry observers noted that JustCo, which unveiled its first space along Robinson Road last September, is among the most aggressive players in the local market. Its parent company JustGroup also has a serviced office arm JustOffice, which operates on a rental workspace concept catering to larger businesses.

“In order to meet the needs of the millennial generation, serviced office providers have begun offering the option of co-working. If you look at JustCo’s footprint, they are expanding aggressively to build up their brand and defend market share,” said Ms Christine Li, research director at Cushman and Wakefield.

“They already have a community which helps them to project how much demand there is for co-working spaces so that gives them the confidence to expand,” she added.


JustCo is not alone in rolling out sprawling co-working spaces in the CBD area. Earlier in the week, The Working Capitol (TWC) unveiled a 55,000-square-foot facility along Robinson Road, its second location after opening its first at Chinatown in 2014.

Spread across 11 floors, the new addition by TWC offers options for businesses with staff ranging from one to 200 people. Initial members include a FinTech (financial technology) lab by RHB Bank and a 100-person tech unicorn that will be occupying an entire floor. A unicorn is a start-up that is valued at one billion dollars or more.

Ms Li from Cushman and Wakefield attributed this take-up of prime offices by co-working space operators to the lingering glut of office spaces and softening rents. According to Ms Li, almost 2.3 million square feet of office space will hit the market next year.

“This supply situation means there are now many options in the market. The rental differences between CBD and suburban locations have also narrowed so it probably makes more sense for these players to expand in the CBD.”

However, a steady stream of new players have since jumped into the rapidly-growing segment and Ms Li noted that even as the concept of co-working remains highly in demand, consolidation is bound to occur. Players who derive their revenue predominantly on cheap rents and have yet to establish their niche will be most at risk.

“Nearly 80 per cent of co-working spaces are located outside of the CBD and their rents are quite manageable. So some players charge their members a bit more and depend on that little premium to be sustainable,” Ms Li explained.

“Overtime, if they do not build up their community and continue to rely on this difference in rent to survive, it will be tough because there are many regional and global players coming into Singapore,” she added.

Source : Channel NewsAsia – 9 Dec 2016