Wednesday, August 20, 2008

Transitional Office Sites Seek Niche As Market Cools

Source : The Business Times, August 20, 2008

Analysts expect lukewarm response as fresh site is rolled out at Mohd Sultan

Sentiment in the Singapore office investment market is worsening, but Urban Redevelopment Authority yesterday rolled out another 15-year leasehold transitional office site as scheduled, this time in the pubbing district of Mohamed Sultan Road.

This is the seventh transitional office site URA has launched since July last year.

CB Richard Ellis executive director Li Hiaw Ho expects few bidders for the site and predicts bids of about $80 to $100 per square foot per plot ratio (psf ppr). 'The site's location in a mixed neighbourhood may appeal to businesses that don't require a CBD location, and to businesses in the creative line,' he said.

Knight Frank director Nicholas Mak projects a slightly higher price range of $100-$130 psf per plot ratio for the site, which is one of two transitional office plots slated for release in second half 2008. The other, at Mountbatten Road, will be launched next month.

Mr Mak reckons the Mohamed Sultan Road plot 'may receive cautious or a few opportunistic bids', citing that the expected completion time of the project on the plot could be close to 2010, when a large supply of office space from other projects is also slated for completion.

CBRE's Mr Li, like some other industry watchers, said it may be timely for the Government to review the necessity of launching yet more transitional office sites in the near future given that the economic situation and outlook for the office market have changed since last year, when transitional office sites were first released.

The concept of these short-leasehold office sites outside the financial district, capable of being developed into low-rise office developments within a year, was devised to help ease the immediate-term office shortage last year. Prime and Grade A office rents nearly doubled in 2007 but the pace of increase has since eased with gains of around 7 to 10 per cent in the first-half of this year from end-2007 levels.

Morgan Stanley said last week it expects Singapore office rents to peak earlier, by end-2008 instead of end-2009, due to lower expectations for office demand, which will be below upcoming office supply (including business parks).

CBRE data shows that some 645,000 sq ft net lettable area of offices would be coming on stream in 2008-2009 from the five transitional sites awarded so far. Market watchers say that any further projects on transitional office sites sold today will be completed closer and closer to 2010, from which point several major office developments are slated for completion, including Marina Bay Financial Centre (MBFC) and Mapletree Business City.

About 10.1 million square feet of new office space will be completed between Q3 2008 and 2012, inclusive of the 645,000 sq ft of transitional offices, CBRE's numbers show.

When contacted, a URA spokeswoman said: 'We've received market feedback that there's demand for transitional office sites at suitable locations from businesses which don't need a city centre location and need office space urgently. The two sites at Mountbatten Road and Mohamed Sultan Road under the H2 2008 Government Land Sales (GLS) Programme are at the fringe of the city centre and are suitable for such developments. The supply of office from major office developments such as MBFC (Phase 1) in 2010 will go towards alleviating the current tight office market. Together, these different sources of office supply in the pipeline will help meet the overall demand for office space.

'The Government will evaluate the market response to the tenders for the Mohamed Sultan Road and Mountbatten Road sites and decide on the release of such sites as part of the planning of first-half 2009 GLS Programme.'

The tender for the Mohamed Sultan Road transitional office site closes on Oct 14.

Separately, URA yesterday said it has accepted applications from parties (which it did not name) for the release of two 60-year leasehold industrial sites at Kallang Pudding Road and Ubi Avenue 4 in the reserve list. In both instances, the minimum price that the successful applicant has committed to bid is almost the same - $69.88 psf ppr for the Kallang Pudding plot and $69.85 psf ppr for the Ubi site, leading market watchers to guess the same party probably made both successful applications.

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