Rising Rents Are Now A Business Challenge

Source : The Business Times, October 11, 2007

Demand and supply mismatch has caused office rentals in the CBD to skyrocket

OFFICE rentals in the Central Business District (CBD) have been climbing relentlessly as a result of the demand and supply mismatch. Conversion of buildings for residential use and the redevelopment of ageing office blocks such as Ocean Building and Overseas Union House further exacerbate the office supply crunch.

Office squeeze: The Marina Bay Financial Centre will only be ready in a few years' time, and the demand- supply imbalance is expected to continue till then

The high demand for office space, which is propelled by financial institutions and business services, continues to drastically outpace new supply. During the first half of this year, supply of office space decreased by about 290,000 sq ft due to the conversion of office space for other use. As a result, the market could not keep up with the 1.29 million sq ft of new demand.

The islandwide occupancy rate for office space rose to a 10-year high of 92 per cent, while Grade A office space in the CBD stood at an almost full occupancy rate of 99 per cent.

In a bid to ease the current office supply crunch, the government has came up with 'stop-gap supply-side' measures such as disallowing the conversion of office space for other uses until the end of 2009, releasing more land for office development under the Government Land Sales programme, as well as offering vacant government buildings for lease as offices.

As most of the major office developments such as Marina Bay Financial Centre (MBFC) will only be ready from 2009 onward, the demand-supply imbalance will continue for the time being. Rental hikes for better quality office space are expected.

Those that are feeling the heat are the smaller and medium-sized companies - both local and multinational corporations (MNCs). They have been leasing prime office space in the CBD area and are caught out by the spike in rentals. To them, coping with rising rentals represents a genuine business challenge.

Despite escalating rentals, foreign investment banks continue to snap up large office floor plates for expansion or relocation of their global operations hub. These financial institutions are eager to set up new offices in Singapore to meet the demands of Asia's unprecedented growth in wealth management. One example is Standard Chartered Bank, which signed one of Singapore's largest office-leasing deals in April. It leased about half a million sq ft of office space, equivalent to 24 floors at MBFC that is slated for completion in 2010.

Major office projects under development and expected to be up in the market in 2007 and 2008 include VisionCrest, Wilkie Edge, 200 Newton and Merrill Lynch Harbourfront, which is already fully leased.

Amid the current office property boom, one can still find cost-effective commercial rental options.

The Singapore Land Authority (SLA) has been releasing vacant state properties and putting them up for lease as offices. A few successful bidders have refurbished the existing sites for renting out to corporate office users. The current rental for these space ranges between $4.00 and $8.50 per sq ft (psf).

Closer to the CBD, 150 Cantonment Road and 341 River Valley Road are expected to be ready for occupation in the final quarter of this year. 150 Cantonment Road has a smaller floor plate of about 6,800 sq ft per floor, while 341 River Valley can cater to tenants which need floor plates of about 50,000 sq ft.

Another spot of interest is the former ITE Pasir Panjang site at 991 Alexandra Road. This site, largest of all the properties released by SLA, can be converted into eight modern low-rise office blocks ranging from one to four storeys and offices ranging from 5,000 sq ft to 41,000 sq ft. Capitalising on the size, the successful bidder, Richzone, plans to create a self-sufficient office environment, complete with cafe and gym, decorated with a lush landscape that is different from a typical city office. This property will be ready for occupation in the first quarter of 2008.

On the other hand, some companies have decided to renew their contracts at higher rents. To cope with expansion, they have to rearrange their office space by reducing the size of workstations and/or decreasing filing space.

Others opt for relocation, even though it is a less preferred choice, in which a number of them split their operations - the main office remains in the CBD while operation personnel are relocated to the fringe areas or regional centres.

Wrapping up, rising office rental is a by-product of a buoyant economy. Operating costs are certainly higher as a consequence but so are more opportunities to generate revenue. At the end of the day, the effects of the existing office supply crunch are only short-term and they will ease as developments begin to come on stream. In the meantime, companies can help themselves by exploring all possibilities, and the good news is that cost-effective rental options are not lacking.

This article is contributed by Knight Frank

World's Wealthy Still Eyeing Property

Source : The Business Times, October 11, 2007

They are undeterred by the market turmoil triggered by the US sub-prime crisis

(GENEVA) The wealthy have lost none of their appetite for property despite the market turmoil triggered by the sale of risky sub-prime mortgages in the US, according to some of the world's top private bankers.

Clients of wealth managers are, however, on the lookout for the next big areas of growth and want products that will enable them to reduce their exposure to any one property or market.

'We're seeing heavy levels of investment in property in Hong Kong (and) throughout Asia,' said Peter Flavel, global head of private banking at Standard Chartered. 'You can't get office space in Singapore, you can't get it in Dubai.'

Speaking at the Reuters Wealth Management Summit, Mr Flavel said there was a 'group of Asians that love real estate' and that their ardour showed no sign of fading. 'They'd see the situation in America as specific to America and the situation in the UK as specific to the UK,' he added.

Samir Raslan, head of Citibank's wealth management operations in central and eastern Europe, Middle East and Africa, said his clients also remained alive to potential opportunities in world real estate markets.

'We haven't seen any change in our clients,' he told the summit held at Reuters offices here.

Nicolas Cagi Nicolau, global head of structured product solutions at SG Private Banking, said demand so far in 2007 had been particularly strong.

In Ireland, where fortunes have been made on the back of the country's decade-long property boom, a fast-cooling domestic market and recent global market turmoil may have had a short-term impact, but investors' love of property is intact.

'All that we may be seeing is that people are just waiting to see what may well happen either domestically or internationally, but the appetite for further investment is undoubtedly there,' said Mark Cunningham, managing director of Bank of Ireland Private Banking.

He said his main problem was persuading Ireland's growing ranks of self-made millionaires to diversify into assets other than real estate. 'The first love has always been property and will continue to be property for a lot of these people.' In Spain, which like Ireland is experiencing a rapid cooling in its property market, the wealthy remain committed to real estate, although not necessarily in their own country.

Daniel de Fernando, head of asset management and private banking at Spain's BBVA , said a new product offering clients a chance to invest in the Mexican property market had proved particularly popular. 'People are asking us for more ideas on that front,' he said of a fund bought into by 60 people within two weeks of its launch at a minimum investment of 2.5 million euros (S$5.2 million) each.

In the Netherlands, property also continues to be popular, according to Bernard Coucke, deputy chief of private banking at ING Groep. 'On the contrary, more and more programmes are being set up, not only in residential but also commercial. Why? Because, for instance in the Netherlands, demand is high . . . and I think it will continue to go up.'

For some rich investors, however, there is a growing belief that other assets can offer better returns.

'I think that the appetite for real estate is decreasing a lot,' Paolo Molesini, head of private banking at Italy's Intesa Sanpaolo said of a country where up until now the wealthy have held about 70 per cent of their assets in property. 'Property costs a lot and gives you a very, very low revenue . . . There is no equilibrium from the price of the asset and the earnings that you can get out of it.' Mr Molesini said his clients were looking to invest in foreign property, particularly in Germany, eastern Europe and Paris. -- Reuters

The Singapore Economy Is On A Roll

Source : The Business Times, October 11, 2007

But it may be unwise to 'invest' all of one's gains playing on the new roulette wheels that are on the way

ANOTHER quarter, another pleasant growth surprise in Singapore. The total output (GDP) of the economy grew by 9.4 per cent in the year to the third quarter, exceeding most forecasts as well as the growth rate of other top performers in the region such as Vietnam and, in all likelihood, India.

New growth drivers: Positive sentiment in Singapore has been whipped up by the prospect of the integrated resorts (such as Las Vegas Sands's Marina Bay project above), the Formula One Grand Prix and the Singapore Flyer

Singapore, as a developed country, is once again showing the kind of expansion normally reserved for developing countries. And to make it even more impressive, this is happening at a time when sizeable concerns surround the US economy, the global electronics cycle has yet to surface from doldrums and GST has recently been raised to 7 per cent.

Singapore's extraordinary resilience reflects strength in industries such as financial services, which is benefiting from still abundant global liquidity; construction, where order books are full with property and infrastructure-related projects; offshore engineering, partly reflecting the high oil price; and not least, the government-favoured biotech sector.

I forecast that such buoyancy will continue, with average GDP growth of 8.5 per cent this year and 7.3 per cent next year. Both projections are above the top end of the government's forecast ranges.

Such strong economic growth is, however, beginning to create problems in the form of rapidly rising costs and prices, while asset markets are beginning to look a little frothy as well.

The second quarter of 2007, for example, saw wage growth hit a seven-year high of 8.5 per cent, no doubt spurred by employment gains of 8.5 per cent over the last year.

The private residential property price index jumped a provisional 27 per cent in the 12 months to the third quarter, while residential rents leapt 30 per cent, and office rents, a staggering 47 per cent.

The Straits Times equity market index is also up more than 50 per cent over the last year and credit growth is running at a double digit rate as well.

So does this all indicate that Singapore is entering an unsustainable bubble similar to that of the mid-1990s and, if so, how is the government likely to react?

Judging by the frequency with which the state of the property market is brought up both by taxi drivers and at parties, as well as the number of property supplements that are springing forth, I would hazard a guess that a real estate bubble may well be in the making.

Positive sentiment in the country has also been whipped up by the prospect of the integrated resorts, the Formula One Grand Prix and the Singapore Flyer.

Nevertheless, even if a bubble is building, I suspect there is plenty of scope for it to expand further. After all, the level of the private residential property price index is still more than 10 per cent lower than it was in 1996, according to Urban Redevelopment Authority data.

Adjusting for the growth in incomes over the period, property is not much more than half as expensive as it was 11 years ago.

The dramatic bursting of the mid-1990s bubble, which saw property prices almost halve in the space of a couple of years, may make the government more cautious in stepping in so aggressively this time, although it may also make it keener to act sooner rather than later.

One small hint of the central bank's inflationary anxieties was seen yesterday with the surprise decision by the MAS to steepen the pace at which the Singapore dollar is targeted to appreciate, albeit marginally.

The government has also increased land sales and raised development charges, targeting the en bloc sales that were, until recently, all the rage. I would not be surprised to see further cooling measures filtering through over the coming months.

The good times are certainly rolling for many and I think they will roll for many more as the benefits of strong growth and the associated property and income gains continue to spread through the economy.

A word of warning though. It may be unwise to 'invest' all of one's gains playing on the new roulette wheels that are coming our way. You may need to save some for the occasional rainy day.

The writer is senior Asian economist at HSBC

Westwood Apartments - En bloc Site Goes On Sale For $2,800 PSF PPR

Source : The Business Times, October 11, 2007

WESTWOOD Apartments, the first luxury collective sale site to be launched after the recent changes to collective sales rules and the US sub-prime crisis, has an indicative price tag of $488 million.

Westwood Apartments: If the indicative price is achieved, the site could set a new benchmark price for collective sales here

This works out to $2,800 per square foot per plot ratio (psf ppr) for the 62,179 sq ft site on Orchard Boulevard.

Marketed by Savills Singapore, its director of investment, Steven Ming, believes the price reflects the site's proximity to Orchard Road and the surrounding luxury residences such as the St Regis Residences, Parkview Eclat, and Orchard Residences which have seen prices transacted in excess of $4,000 psf in recent months.

The site can be built up to 20 storeys and yield around 69 units of condominium apartments of 2,500 sq ft, added Mr Ming.

If the indicative price is achieved, Westwood Apartments could set a new benchmark price for collective sales here.

The present record holder is The Ardmore, acquired by SC Global in June for $262 million or $2,337 psf ppr.

Savills Singapore is also marketing Welkin Mansions in River Valley. Director of investment projects, Suzie Mok, expects the 26,000 sq ft site to fetch $1,800 psf ppr. This works out to be around $130 million.

The site can be built up to 36 storeys and yield about 48 units of around 1,500 sq ft.

Another unusual site that has been put up for sale is Northshore Bungalows in Ponggol.

The existing development comprises 20 units of bungalows and two plots of bungalow land with swimming pool and a clubhouse.

The 129,585 sq ft site has a plot ratio of 2.1 and is zoned for 2-storey bungalows.

Marketed by United Premas Ltd, Northshore Bungalows has an indicative price of $92.4 million, excluding development charges of $14 million.

United Premas reckons that the site can potentially accommodate about 72 units of resort-style strata titled bungalows which can be built up to two storeys with an attic, a basement and two basement car park lots.

HDB Prices Likely To Go Up As Unsold Flats Dwindle

Source : The Business Times, October 11, 2007

1,600 apply online for 489 flats offered in balloting/walk-in sale yesterday

THE number of unsold Housing and Development Board (HDB) flats is getting smaller, with prices expected to go up.

HDB put up 489 flats in the North and West zones for sale yesterday through its Bi-monthly Combined Balloting/Walk-in sale exercise, and at the end of the day, over 1,600 online applications had been received.

The number of flats offered, however, is significantly smaller than in previous sale exercises.

In April, 1,269 flats were offered in the North and West zones, with 1,172 sold, reflecting a take-up rate of 92 per cent.

In June, 992 flats in the North-east zone were offered and 892 were sold - a take-up rate of 97 per cent.

A spokesman for HDB said: 'HDB has managed to clear a significant part of its stock of unsold flats; fewer unsold flats are now avail- able for sale under HDB's Bi-monthly Combined Balloting/Walk-in sale exercises.'

HDB said that it would continue to inject the balance stock from the Built-to-Order (BTO) and Balloting Exercises, and make them available for sale under the bi-monthly sale exercises.

'However, the total flat supply offered under these exercises is not expected to number into the thousands as it did in the past, given the gradual reduction of the stock of unsold flats,' said HDB.

HDB would not say if prices have been increased but added: 'In pricing HDB flats, one major consideration is the affordability of flats. In addition,

HDB also takes into consideration factors such as changes in their market value, arising from factors such as buyer demand and prevailing conditions in the resale markets and, individual attributes of the flats.'

HDB also suggested that buyers look to the resale market, 'if they are unable to find a new flat that suits their needs and preferences'.

The backlog of unsold flats was estimated at 9,000 in 2006.

Propnex CEO Mohamed Ismail believes that this has dwindled to less than 2,000 units.

Interestingly, Mr Mohamed believes that the previous glut of unsold flats came about because the value of resale flats had dropped to below valuation in the last slump.

Resale prices have, however, been rising, with the latest resale price index registering an increase of 6.5 per cent in Q3 '07, quarter-on-quarter.

And ERA Singapore assistant vice-president Eugene Lim believes that the 'push down' effect from the private market could price some buyers out.

These price-sensitive buyers will have to wait for the supply of about 4,500 new HDB flats offered under the BTO system, or the 1,500 units through the Design Build Sell Scheme, over the next six months.

Still, Mr Lim does not believe that there is a supply crunch at the lower end of the property market. 'People are looking for value though,' he added.