Orchard Prime Rents May Fall 20%

Source : The Straits Times, March 21, 2009

Challenging retail sector is forcing landlords to look at making cuts

IN ORDINARY times, the move to transform Singapore's premier shopping strip with three glitzy new malls would mean higher rents.

But the latest property industry report suggests that Orchard Road prime rents could fall further - by 15 to 20 per cent - by the end of the year.

The CBRE property report says Orchard Road prime rents could fall by a further 15 to 20 per cent by year-end. -- PHOTO: SINGAPORE TOURISM BROAD

A weakening economy, a shift away from luxury goods, and shrinking tourist arrivals spell gloom for hard-pressed retailers with space in the area.

Consultancy CB Richard Ellis (CBRE) says rents will fall as landlords pass on property tax rebates, extend rent-free periods, set lower rent levels for new space, or cut existing rents.

So far this quarter, prime rents have eased 3.3per cent from late last year to an average of $34.90 per sq ft (psf) a month, according to its latest data. The fourth quarter last year saw the first rent fall in the shopping belt in five years.

The retail sector is becoming increasingly challenging as leasing demand is subdued by new mall completions about to offer more retail space in the area.

Already, many retailers are crying out for rent cuts from landlords as they see the economic crisis further undermining already-weak sales.

Aside from the weakening economy, upcoming new malls, such as Ion Orchard (above), are putting additional downward pressure on rentals in the retail sector. -- ST PHOTO: NG SOR LUAN

Suburban malls, which experts have said should be more resilient than prime Orchard Road malls, are also feeling the impact of the gloomy climate.

Prime suburban rents slid by a smaller 2.4per cent from the fourth quarter to $28.30 psf per month, said CBRE.

For the whole of this year, they could decline by 10 to 15per cent, it said.

The somewhat smaller expected drop in suburban mall rents reflects their greater resilience to the recession.

They benefit from shoppers living nearby and from steady demand for basic goods. They also face less competition from new malls, said CBRE's director of retail services, Ms Letty Lee.

'As tenant retention becomes increasingly critical to shopping malls, more landlords are likely to initiate rental incentives or repackage rental structures.'

Just this week, the Singapore Retailers Association (SRA) intensified its call for rent cuts by getting three other associations on board. They say they are banding together as calls for rental rebates have gone unheeded, and they warn that many retailers will go under if nothing is done soon to bring rent levels in line with the much weaker sales environment.

'The issue which is most pressing now and which retailers are still very concerned about is existing tenancies with high rental rates which were locked in during the good times, and which are eroding their businesses now, when sales revenues have dropped significantly,' said the association's executive director, Ms Lau Chuen Wei yesterday.

'These are the ones in danger of closure if nothing is done to stem the losses. And closure means job losses.'

SRA had originally hoped landlords would reduce rents to 2005 levels 'which in many cases would be about 50per cent of current rates', said Ms Lau.

But she said that tenants are realistic and recognise that 'this is probably not possible'. With this in mind, SRA has moderated its position to seek an average 20 to 30per cent cut in rents, particularly for existing leases.

Ms Lau added that the industry is not expecting rental rates to be reduced on a long term basis, but rather for, say, six months, as the market is very volatile.

New signings are less of a concern to SRA as these retailers will be more ready to refuse a store location if the rental is not financially viable, said Ms Lau.

Indeed, new malls opening this year have witnessed some tenant pull-outs due to the weak market. This happened at City Square Residences in Kitchener Link, though developer City Developments said the vacant prime space was quickly filled up.

Hotels Cut Room Rates As Occupancies Slide

Source : The Business Times, March 23, 2009

Room rates fall up to 20%; corporate demand slows as companies cut cost

IT'S known that what goes up must come down, but in this case, the inevitable may be coming a little quicker and sharper than expected as lower occupancies force hotels to cut room rates.

At the Rendezvous Hotel for example, corporate rates have gone down 20 per cent to $190++ and walk-in rates have dropped 20 per cent to $220++. Average occupancy is hovering at 70 per cent, versus last year's 80 per cent. The hotel aims to beef up occupancy through a lower room rate so as to reclaim its 80 per cent occupancy level.

The Royal Plaza on Scotts has adjusted average room rates downward by 12 per cent, due to weakening demand for high end products such as club rooms and suites, says Patrick Fiat, general manager. Its room rates currently start from $198++.

At the Marina Mandarin, rates are down year on year but the hotel declined to give figures. Occupancies for Q1'09 were as expected, but rates are 'under pressure.'

One of the reasons for this is a drop in business travel as companies try to keep expenses down.

'Since the last quarter of last year, we observed that there has been a slowdown in the corporate sector. Currently, the business trend is still on the slow side, hence we have adjusted the rates to further suit our client spending power,' said a spokesperson from the Marina Mandarin.

Over at the St Regis Hotel, room rates for both frequent individual travellers (FIT) and corporates have been lower for the first two months of the year compared to the corresponding period in 2008, according to Cheryl Ong, its director of marketing communications. 'Occupancy is under pressure with lesser in-bound travel into Singapore,' she added, but declined to comment on actual figures.

Hotels are also offering value-added packages. The Novotel Clarke Quay, for instance, has tweaked rates by between 5-10 per cent for key corporate clients. Those that forego the discount can look forward to other perks such as transportation and Internet service, said general manager Heinz Colby.

And as some consumers trade in their five-star hotel stays for value-for-money accommodation, hotels in the three and four star range are expecting to reap the benefits, although such establishments won't escape unscathed either.

'There are clients who are looking for cheaper accommodation. Hence, we are also affected. For leisure, we see a decline in visitor arrival especially for long haul travel,' said Kellvin Ong, general manager of the four star Rendezvous Hotel.

'There are also other factors which may affect occupancy. New kids on the block are sprouting, which may shrink the pie,' he added.

Indeed, another hurdle facing the industry, aside from the slump in visitor arrivals, is the injection of supply that the market will see this year as new hotels come onstream.

The recently launched Ibis Singapore - a no-frills, three star hotel by the Accor group - offers rooms starting from $138 per night. Other hotels that are expected to open their doors this year include the 336-room Park Hotel Clarke Quay.

According to a Kim Eng report, an estimated 2,000 hotel rooms from the Marina Bay Sands and a further 1,640 rooms from other hotels are slated for completion in 2009. This would raise the total available room-nights by 12 per cent to 11.7 million for 2009. There are currently 39,000 hotel rooms in Singapore, said the Singapore Tourism Board (STB).

If the integrated resorts (IR) fail to draw the crowds, Kim Eng estimates that average occupancy rate (AOR) could fall to 55 per cent by year end, and to 50 per cent by end 2010 - not far from the lows plumbed at the height of the Sars outbreak in May 2003, when AOR fell to 34 per cent.

On the flip side, a successful showing by the IRs coupled with the positive impact of the various global stimulus packages and the efforts of STB's $90 million BOOST scheme could stabilise AOR at 60-65 per cent for 2009 and 2010, Kim Eng reckons.

Meanwhile, hotels are banking on recent efforts by STB and tie-ups with airlines such as Singapore Airlines to bring the tourists back.

'We are expecting last minute bookings from the region as the various airlines have come up with promotions to stimulate travel. We are optimistic that there will be business out there although the numbers have not yet shown it,' said Mr Ong.

STB's figures for January 2009 saw average room rate (ARR) sliding 11.7 per cent year on year to $209, while AOR dropped 17.7 percentage points to 67 per cent, well below last year's overall AOR of 81 per cent. Revpar (revenue per available room) fell 30.2 per cent year on year to $140. Hotels pulled in $124 million in room revenue, a staggering 29.9 per cent less than the corresponding month in 2008.

In contrast, for 2008 as a whole, ARR was $246, an increase of 21.9 per cent over 2007. For the first time since 2003, AOR was down by six percentage points to 81 per cent while Revpar for the year reached $199, up 13.5 per cent from 2007.

For January 2009, luxury and upscale hotels suffered larger drops in ARR and Revpar, while hotels in the economy tier - budget hotels in outlying areas - emerged in a better position.

However, economy hotels still saw a 3.4 per cent year on year dip in ARR to $101 for January, and a 26.8 per cent fall in Revpar to $66.

KepLand To Defer Luxury Project

Source : The Straits Times, March 21, 2009

Madison joins others in weakening market that have been put on hold

PROPERTY developer Keppel Land (KepLand) yesterday announced that it will defer the construction of its 56-unit development, Madison Residences, because of weak market conditions.

Construction of the 56-unit luxury development in Bukit Timah was originally scheduled to start last June and a preview had already been held. -- PHOTO: MADISON RESIDENCES

The project has not been launched.

Luxury condos such as the Madison have fallen out of favour in recent times as buyers turn to smaller, more affordable apartments.

Some earlier reports said 'some units' had been sold at the preview of the Bukit Timah condo for a median price of $1,801 per sq ft (psf).

However, KepLand said yesterday only one sale had been made, and that had been cancelled 'by mutual agreement'. It declined to give details.

Analysts that The Straits Times spoke to said it was not uncommon for developers to offer to buy back units sold at the preview of a project if there were changes to its development.

A search on the Urban Redevelopment Authority's website showed a single caveat lodged for a 1,776 sq ft unit at $3.1 million - or $1,745 psf - in September last year.

'Given current market conditions, there is no urgency to proceed with the construction of Madison Residences. The launch or when the construction will resume for the project will depend on market conditions,' KepLand told The Straits Times.

Construction was meant to start last June and take 21/2 years. Construction and property group KSH Holdings had won a $53 million contract from Keppel Land Realty to build Madison, it was reported.

The project consists of luxury three- and four-bedroom apartments that range in size from 1,460 sq ft to 4,000 sq ft.

Madison is the latest in a string of projects in the local property market that have been deferred in the wake of the global economic crisis.

Luxury units seem to have been hit harder, noted analysts, as buyers now prefer mass-market, lower-priced condos.

KepLand said in January that it would consider delaying the construction of some of its projects to save costs.

Some measures unveiled in January by the Government in the Budget also gave developers greater flexibility in terms of selling their residential units.

The measures include a one-year extension of the completion period for private residential projects. Also extended was the period in which developers with qualifying certificates need to dispose of all residential units, from two years to four. They can rent out unsold units during this time.

CB Richard Ellis executive director Joseph Tan said there had been examples in the past of developers offering to buy back units if there were changes to the development plans. He noted that it was also not unusual for a project to be deferred even after the preview.

In its statement to the Singapore Exchange, KepLand said the deferment is not expected to have any significant impact on the company's earnings per share for the current financial year.

KepLand Defers Construction Of Marina Bay Suites

Source : The Business Times, March 21, 2009

Building of Madison Residences also delayed by current market conditions

KEPPEL Land is deferring construction of the highly touted Marina Bay Suites (in which it has one-third stake) as well as Madison Residences in Bukit Timah, citing 'current market conditions'. KepLand is developing the 221-unit Marina Bay Suites jointly with Cheung Kong Holdings/Hutchison Whampoa and Hongkong Land.

DELAYED
Worsening sentiment in the high-end residential sector

In a filing with the Singapore Exchange yesterday, KepLand announced construction deferral of the 56-unit Madison Residences on the former Naga Court site in Bukit Timah.

The group had earlier managed to sell just one unit in the project, at about $1,740 per square foot, in the second half of last year. However, a KepLand spokeswoman told BT yesterday that the sale of that unit has been cancelled by mutual agreement. 'We are unable to provide details due to confidentiality,' she added. When asked, she also revealed that 'a decision has been made to defer the commencement of the main construction of Marina Bay Suites'. However, construction of another of the group's residential projects in Singapore, The Promont, located in Cairnhill, will continue.

It has been one postponement after another for Marina Bay Suites because of deteriorating sentiment in the high-end residential sector. The tripartite partnership developing the condo had initially hoped to launch the project around end-January last year, but this was delayed to later the same quarter, and even then, that did not happen. The project has not been launched to date.

KepLand's spokeswoman did not say how long the construction deferments for Marina Bay Suites and Madison Residences will be.

In its release to SGX, KepLand said the construction deferment for Madison Residences is not expected to have any significant impact on the consolidated earnings per share and net tangible asset per share of the company for the current financial year ending Dec 31, 2009.

Separately, construction group KSH Holdings also said in a statutory filing with SGX yesterday that it has agreed to the request of Keppel Land Realty to defer the construction of Madison Residences. The delay is not expected to have any material effect on KSH for the financial year ending March 31, 2009. KSH announced in April last year that it had won a $53 million contract from Keppel Land Realty relating to the construction of Madison Residences.

In January, Keppel Land's group chief executive Kevin Wong said the group will conduct a review to see if it can delay building some of its projects. 'We are reviewing our operation costs as well as the project costs of all our development projects to trim fat and conserve cash, so that we can invest in any attractive opportunities that come along. 'This cost review exercise could include developing projects in phases to meet demand and even temporarily suspending the entire project if it does not add value to the company under current market conditions,' Mr Wong said then. Projects that are yet to be launched for sale are those that are most likely to be delayed both in Singapore and abroad, he added.

KepLand's earnings for the year ended Dec 31, 2008 fell 70.8 per cent to $227.7 million, from $779.7 million in FY 2007.

Funds, Banks Start Shopping For Real Estate Assets

Source : The Business Times, March 20, 2009

Players laying groundwork to snap up regional assets on the cheap

Institutional funds and private banks are scouting for property assets in the Asia-Pacific, industry players say.

The funds and banks - armed with billions of dollars in cash - are laying the groundwork so they can snap up assets on the cheap later in the year.

Interest on the rise: SG Private Banking hopes to invest US$500m in Asian property by end-2010 while Korea's Woori Investment plans to punp in US$300-500m. S'pore-based ARA Asia Dragon Fund has a US$1b warchest

SG Private Banking, which just set up a centre in Singapore to focus on real estate, hopes to invest another US$500 million in Asian property by end-2010.

Other firms here have similar plans. For example, Woori Investment & Securities (Woori I & S), part of Korea's Woori Financial Group, is looking at arranging and investing about US$300-500 million in Asian property over the next two years. And Singapore-based ARA Asia Dragon Fund aims to invest another US$1 billion in Asia over the next two to three years.

Investment sales across Asia fell sharply in 2008 amid financial market turmoil, tight credit and higher funding costs. In Singapore, for example, investment sales last year were $17.8 billion - a 70 per cent drop from $54.02 billion in 2007, according to CB Richard Ellis.

But buying interest is slowly coming back as asset prices fall from their 2007 peaks. 'The near- term weakness creates a favourable entry point,' said John Lim, chief executive of ARA Asset Management, which manages the ARA Asia Dragon Fund.

Keiichi Hirano, SG Private Banking's Singapore-based global real estate head, told BT that asset prices generally are already about 30-35 per cent off their peak. Others put the drop anywhere between 20-40 per cent.

Market players say there is still a difference between asking prices and what buyers are willing to pay.

But Sung Heun Do, director and head of real estate investment and finance at Woori I & S, said: 'We believe this year will present very good opportunities to acquire key assets, though a lot will depend on other factors like the credit market.'

The amount the firm will invest will 'depend heavily on whether we are able to secure the right assets at the right risk-adjusted returns', Mr Sung said.

Others echo this view, saying returns are crucial as they shop around. SG Private Banking's Mr Hirano said his team will look for physical assets and property-related paper assets that yield about 10 per cent per annum.

He wants to increase SG Private Banking's exposure to real estate through its new Global Centre of Expertise in Real Estate in Singapore. SG Private Banking had 66.9 billion euros (S$138 billion) of assets under management at end-2008. The bank did not say how much of this was in the Asia-Pacific region, or in real estate. But right now, less than 5 per cent of SG Private Banking's investments are in real estate. By contrast, most high net worth individuals have 18-25 per cent of their portfolios in real estate, Mr Hirano said.

ARA's Mr Lim said that for the next six to nine months there will be a continued downward pressure on rents across most sectors and markets. But taking a medium-term view of three to five years, now is a good time to go in, he said: 'You must be able to take the medium-term view to make serious money.'

Established markets are proving more popular, with firms looking hard at Hong Kong, Tokyo, Singapore and Australia. Woori I & S is also bullish on Korea and said it is seeing a lot of interest from non-Korean associates to partner it in acquiring prime assets in Seoul.

China, on the other hand, is proving more controversial. Some funds BT spoke to said they will stay away from China as the real estate markets there are not well-established. ARA's Mr Lim, however, is upbeat about the country. 'We are most confident in China. We still think that the fundamentals are strong,' he said.

Another development is that many funds are looking at physical real estate, rather than just paper assets. In the past four or five years, clients were more interested in property-linked paper assets such as equities and funds, as these were cheaper and easier to invest in. But interest in physical assets is increasing as their prices slump in the current economic downturn. 'We will offer our clients the opportunity to invest into any country, and any type of property,' said SG Private Banking's Mr Hirano.