THE Singapore Land Authority (SLA) has launched a public tender for the adaptive re-use of the former headquarters of the Internal Security Department (ISD) and Ministry of Home Affairs (MHA) at Phoenix Park, off Tanglin Road.

Designated for office use, the 641,851-sq-ft site houses 24 low-rise blocks with a gross floor area of 143,160 sq ft. The guide rent is $165,000 per month or $1.15 per square foot (psf) per month.

SLA is looking for a master tenant to take the whole site. SLA senior manager of project services Winston Cheah said: ‘The set-up of the premises allows for the tenant to parcel and sub-lease the blocks, each creating a separate identity.’

The site’s historic associations go back to the mid-20th century when the British Secret Service built the first blocks there after World War II. Their design was decided by Lord Mountbatten, then Supreme Allied Commander of the South East Asia command.

ISD’s predecessor, the Special Branch, moved in in 1948, until MHA moved in from 1977-2001. MHA was followed by Republic Polytechnic from 2004-2006.

Cushman & Wakefield managing director Donald Han says the fact that the buildings were recently used ’shows occupation readiness’, which should make them more attractive to bidders.

He reckons office rents there could be $4-$5.50 psf per month. So the developer will need to achieve a break-even cost of $2.50-$3.50 to see a good profit margin.

Mr Han also said the site has ample parking and outdoor space that could be maximised.

SLA also revealed yesterday that the tender for 10 Winstedt Road, formerly Monk’s Hill Secondary School, closed on April 16 with seven bids received.

The 164,798.5-sq-ft site and premises with a gross floor area of 83,889 sq ft drew a top bid of $211,328 per month or $2.52 psf per month from Allbest Equipments. This is 43 per cent above SLA’s guide rent of $147,300 per month or $1.76 psf per month.

Allbest general manager C H Chan said that if the company is awarded the site, it intends to use 5-10 per cent of the built-up area for its corporate office and lease out the rest at $7-$8 psf.

On the demand for such space, Mr Han said: ‘As long as it can be ready within six months, the market is still in the hands of the landlords.’

Source : Business Times - 14 May 2008

THE sprawling Phoenix Park site in Tanglin Road, which housed the Ministry of Home Affairs (MHA) for more than two decades, can now be leased for office use.

The 641,852 sq ft site, in the exclusive foreign embassy district, should help ease Singapore’s office space crunch.

The Singapore Land Authority (SLA) yesterday launched the site tender. The site is now also open for public viewing for the first time.

The historical buildings were built by the British after World World II. They also once housed the headquarters of the Internal Security Department, which is now at New Phoenix Park in Irrawaddy Road. The MHA moved into Phoenix Park in 1977 and stayed there until 2001, when it relocated to Irrawaddy Road.

The complex was then used by Republic Polytechnic for about two years until the middle of 2006, when the institution moved to its new campus in Woodlands.

The successful bidder will likely have to spend several million dollars to spruce up the rundown buildings before leasing them out. There are 31 blocks, of which 24 are single-storey and four are two- and three-storey buildings. Two substation blocks and one bin centre make up the rest of the buildings.

The four main blocks are now under conservation study, which means future tenants must retain the facades, including the windows and certain architectural features, during any renovation work.

The site - a gazetted tree conservation area - has a basketball court and four carparks.

The SLA wishes to work with a master tenant instead of several tenants. Its guide rent is $165,000 a month, or about $1.15 per sq ft (psf). The site has a gross floor area of 143,160 sq ft and can be leased for an initial three years, with options to renew the lease up to 2017.

Hean Nerng Holdings, a firm specialising in converting old premises for new uses, believes the site has good potential as an office location.

Mr Danny Wong, its marketing manager, said on a site tour yesterday: ‘Offices can lease out one whole block with their own entrance. It’s good for corporate branding.’

While the site is strictly for office use, the SLA allows for supporting uses such as a staff canteen, gymnasium and other food and recreational facilities.

Offices on the site may appeal to advertising firms, for instance, and could rent for $3 psf to $6 psf, sources said.

Due to tight supply, office rents in Singapore have surged to an average $17 psf to $18 psf for top buildings in areas like Raffles Place.

Since February last year, the SLA has helped relieve the shortage by tendering out 18 former schools and other vacant properties for office use. So far, 13 of them have been taken up.

Its tender for the former Monk’s Hill Secondary School off Bukit Timah Road attracted seven bids - all above its guide rent of $147,300 a month.

AllBest Equipment had the highest tendered monthly rent of $211,328, or $2.52 psf.

General manager C.H. Chan said it would use one of the four blocks for its corporate office and lease out the rest at possibly $9 psf to $10 psf.

The firm will spend up to $4 million on renovation, which will bring its break-even cost to about $6 psf to $7 psf, he said.

Source : Straits Times - 14 May 2008

The race to snap up The Atrium @ Orchard is said to have narrowed to two parties: a US fund, and a unit of CapitaLand group, possibly CapitaMall Trust (CMT), which owns Plaza Singapura next door. The price is understood to be in the region of $2,200-$2,300 per square foot of net lettable area (NLA). Based on the property’s total NLA of around 370,000 sq ft, the asset would be priced at over $800 million.

The property is being sold by Singapore Land Authority (SLA).

BT understands a deal is in the process of being sewn up.

While some analysts questioned the rationale behind CMT’s interest in a predominantly office development, seasoned property investors said CapitaLand or CMT would be the most logical buyer of the asset, given the synergies that can be drawn from owning the Plaza Singapura mall.

It can also reposition The Atrium, which is a predominantly office development, to have a bigger retail component, given its Orchard Road frontage.

The expression-of-interest exercise for the Grade A office property closed on Feb 22 and is believed to have attracted a number of offers. The two highest bidders - the US fund and CMT/CapitaLand - were selected to proceed with due diligence. Industry players do not seem to know much about the US fund or its plans for the property.

SLA will issue a fresh 99-year leasehold tenure for the property from mid-2008, according to earlier reports. The Atrium comprises two office towers, seven and 10 storeys high, with ground-floor retail space.

Currently, The Atrium’s retail component is confined to only about 10,000 sq ft out of the total 370,000 sq ft NLA.

Some feel that the eventual buyer of The Atrium may introduce more shop/ restaurant space into the development given its location in Singapore’s main shopping belt. One way would be to decant space from the upper floors and create higher-value retail/ restaurant space on the lower levels - a tried-and-tested CMT asset enhancement formula. ‘Another way would be to punch an atrium into the development and install escalators to bring shoppers up to the first few levels of the property. There may also be scope to introduce retail space in the basement,’ a market watcher suggested.

However, it may take a while before such plans are executed due to the current office crunch and ongoing leases in the property.

‘If CapitaLand Retail/ CMT end up with The Atrium, there’ll also be scope to better connect it with the group’s Plaza Singapura mall. Perhaps they could buy/lease state land between the two properties and build low-rise facilities suitable for, say, alfresco dining. Extending retail activities closer to Orchard Road would also help to draw more shoppers to Plaza Singapura,’ an industry observer said.

Completed in 2002, The Atrium’s current average monthly rent (based on existing leases) is understood to be below $6 psf - translating to a passing net property yield of just over 2 per cent. However, BT understands this could go up to more than 3 per cent within the next 12 months.

CMT is currently trading at about 4 per cent distribution yield on the stock market. Some suggested using a significant debt component to fund the acquisition. As at March 31, 2008, CMT had an asset size of about $5.9 billion and a gearing ratio of 35.3 per cent. CMT could fund the acquisition of The Atrium entirely through debt and still not exceed 45 per cent gearing at trust level. ‘If the cost of funding is sufficiently below The Atrium’s net property yield, the acquisition could still be immediately yield accretive to CMT. If not, there’s always the possibility of the property being initially acquired by CapitaLand Retail and warehoused for asset enhancement and other yield-boosting exercises before being offered to CMT,’ an analyst suggests.

The $2,200-2,300 psf price currently being negotiated is lower than the ‘above $2,700 psf’ price tag indicated at the start of the property’s marketing campaign in January. However, sentiment in the office investment market has weakened, because of difficulty in securing debt funding, and concerns of surging supply post-2011.

The asset is said to be stuck with some long leases locked at pretty low rental rates. Tenants include Temasek Holdings, Barclays and MTV Asia.

Source : Business Times - 14 May 2008

The former Ministry of Home Affairs (MHA) Complex at Tanglin Road, which is also known as Phoenix Park, has been placed for tender.

According to the Singapore Land Authority (SLA), the prime site on the fringe of the Orchard Road belt will be open for adaptive re-use as office space.

Analysts said they are expecting to see strong interest due to the current office space crunch.

Winston Cheah, Senior Management, Project Services, SLA, said: “At the moment, there is an office space crunch. We are contributing by providing more office space. We hope the successful bidder can make this into an office icon.”

Phoenix Park has a land area of just under 57,000 square metres and a gross floor area of about 13,000 square metres. The tenancy is for an initial three years and renewable on terms up to 2017.

What makes the site stand out is its 31 individual blocks.

Danny Wong, Marketing Manager, Hean Nerng Holdings, said: “The potential is very good here. There are a lot of blocks. Companies are better off leasing one block to themselves, (compared to leasing) a commercial development where they have to share different floors. Over here, they can have their own space and their own entrance. This is good for companies who want a strong corporate image.”

And the sprawling landscape means more car park space will be available, compared to the financial district.

The current indicative rent of S$165,000 a month is also seen as tempting, despite the retrofitting work required.

Donald Han, Managing Director, Cushman & Wakefield (Singapore), said: “The current price as a guide price translates into about S$1.15 psf. If you’re looking at refurbishing this entire portfolio at a cost of about S$50 – S$70 psf, it (will) breakeven at about S$2.50 to S$3.00 psf. In this area, you can look at leasing anything from about S$4.00 to S$5.50.”

Cushman & Wakefield said bidders may pay up to S$4.00 psf.

“If you look at other transitional sites at Scotts Road near the MRT, the breakeven point is about S$5.00 psf. We lease that at about S$7.00 to S$8.00 psf. So where Phoenix Park is, with no easy access to MRT, we’re at S$5.00, not beyond S$6.00,” said Mr Han.

Likely tenants include those who may not require a city centre location, but would like to remain accessible to the financial district such as advertising agencies.

The tender closes on June 4.

Since February last year, SLA had tendered out 20 former schools, vacant community centres, childcare centres and institutional buildings for office use only.

Source : Channel NewsAsia - 13 May 2008

Another landmark near Orchard Road may soon get a facelift. Channel NewsAsia understands that Shaw Organisation is considering a major redevelopment of Shaw House and its neighbouring Shaw Centre.

According to some sources, an official announcement is expected by August. The news comes even as some tenants have moved out in recent months following a spike in rentals.

Shaw House has been a major landmark near Orchard Road for years - but it may soon take on a different look.

According to sources, plans are in the pipeline to expand Shaw Organisation’s Lido Cineplex, and to add more retail space.

Channel NewsAsia understands that Shaw Organisation is currently in talks with various architects on its redevelopment plans. However, it has not decided if this would include its office and retail spaces in Shaw Centre.

The tenants have not been informed officially, although they have heard word on the grapevine. They declined to be interviewed.

The present Shaw House opened in 1993, and includes anchor tenant Isetan. It adjoins Shaw Centre, which has retail, F&B and office space, as well as a bank.

Retail rentals there have jumped from S$6 a square foot to as much as S$16 a square foot in recent months, and a number of tenants have moved out.

Market watchers said that it is likely the new site may even include new residential spaces.

Nicholas Mak, Director, Consultancy and Research, Knight Frank, said: “I think that if any residential development were to be redeveloped on that site, and if it is priced reasonably, demand would be quite strong.”

But they do not expect the re-development to have a major impact on retail space and shop rentals along Orchard Road.

Mr Mak said, “In about 12 months or so, we’re going to see some new developments coming up on Orchard Road. So, if a major retail mall were to temporarily be taken offline, I think that vacuum could be filled by some of these new malls.”

Channel NewsAsia understands that re-development is likely to start in the second half of next year. - CNA/ms

Source : Channel NewsAsia - 12 May 2008

Prices holding for now but may suffer if wider market weakens

THE dispirited housing market has claimed another casualty: Sales of strata-titled offices have taken a nosedive this year.

And while prices are holding steady for now, they might start to dip in the coming months, predicted property firm CB Richard Ellis (CBRE).

It analysed data for seven major strata-titled office buildings and found that, in the first three months of the year, only 11 sales of strata office units took place. These properties are not sold as entire office blocks; instead, units are sold singly.

The figure is less than half of that in the previous quarter and a fifth of that for the same period a year ago. In the first quarter, most of the buildings saw only one sale or none at all.

The slowdown in deals comes despite a continuing shortage of office supply, which helped boost sales and prices of strata office units to record highs last year. Some $1.7 billion of offices changed hands last year.

Since the office crunch has not improved much, this implies that the sombre mood in the market is behind the lacklustre activity, said Mr Jeremy Lake, CBRE’s executive director of investment properties.

‘In the strata-titled market, most transactions are relatively small, so buyers are high net worth individuals or companies rather than property funds,’ he said.

‘They are more likely to be sentiment-driven, and no doubt, sentiment now is not as strong as it was a year ago.’

The stalled office activity echoes the current housing market situation in Singapore, Mr Lake added.

Homebuyers and sellers are at a stand-off now, after private property prices soared 31 per cent last year only to hit the brakes towards year-end following the sub-prime mortgage crisis in the United States.

‘For the secondary markets in the residential and office segments, most vendors will hold on if they can’t get their price,’ said Mr Lake.

‘Because rentals are very good and mortgage rates are low, investors have strong holding power.’

Across property types, offices saw the smallest increase in prices in the first three months of this year, perhaps because of the slowdown in activity. They inched up 1.1 per cent in the January to March period.

Mr Lake said he believes office prices are now ‘largely flat’ rather than on an uptrend.

CBRE data shows that in some buildings, the average price of offices sold has actually come down this year.

At International Plaza, for instance, the average price of units sold in January to March was $1,375 per sq ft (psf), down from $1,449 psf in the previous three months.

But Mr Lake said it is too soon yet to say if prices are peaking. ‘It’s a lull at the moment. Whether it will turn into a peak, we shall see.’

However, he added that investors ’should not expect to see exciting capital gains going forward’.

‘We’re likely to see easing of activity and easing of capital values with the market stalled as it is,’ he said.

Source : Straits Times - 12 May 2008

Tenants of existing block given till end of this month to vacate premises

THE fitness chain True Yoga will have to find a new position to assume in the business district after one of its outlets got its marching orders, but it might be a bit of a stretch given the shortage of office space.

True Yoga and other tenants, including chemist Watsons and the Denise wine shop, must leave the retail block at the OUB Centre at Raffles Place to make way for a $530 million office tower.

RISING SOON: The OUB Centre Tower 2, seen here in an artist’s impression, is expected to fetch rental rates of $15 psf to $16 psf. — PHOTO: OUE

The yoga and fitness centre, which takes up more than 30,000 sq ft across four floors of the low-rise retail podium, will close at midnight next Thursday.

The other tenants must leave by the end of this month.

True Yoga has not yet secured another site, but its clients can use the group’s other two outlets at Pacific Plaza and Ocean Towers in Raffles Place. It has also arranged for its fitness clients to use facilities at Planet Fitness for six months and further extended membership packages for another six months.

Property firm Overseas Union Enterprise (OUE) will start to redevelop the retail podium site from June 1.

The podium sits next to the 60-storey OUB Centre office tower, which will not be affected by the redevelopment.

OUE received provisional permission to redevelop the podium in August last year.

True Yoga said yesterday that it was first told of the landlord’s plans on Jan 31 and given three months’ notice.

It was then granted extensions on a month-to-month basis as there had been a chance the development plans might be delayed. OUE then confirmed on April 4 that there would be no further extensions, as construction would start next month.

‘We have been actively looking for alternative locations,’ a True Yoga spokesman said last night.

‘It is not easy to locate a site of this magnitude within such a short time since the final notification on April 4.’

Some True Yoga clients were upset with the late notice of the closure.

Although the new office block will be ready only in three years, OUE has already started leasing talks with potential office tenants.

Such forward leasing action is common these days, given rising supply looming in the next 12 months and beyond.

A significant portion of OUE’s $530 million outlay will go to the Government for increasing the site’s allowable gross floor area and topping up the site’s lease from 75 years to 99 years.

Three floors in the new tower will be devoted to retail and the rest to offices. The entire block will have a total gross floor area of 45,158 sq m.

The development comes amid a boom time for office development, particularly in the business district, though there are concerns of an oversupply after 2010.

Rents have surged in the past year, with prime Grade A rents now hovering between $17 per sq ft (psf) and $18 psf.

‘There are now two market rates at work, depending on the occupation period,’ said Mr Donald Han, managing director of Cushman & Wakefield.

Rents at OUB Centre Tower 2, if already ready, could be about $18 psf. Forward rental rates for the same building, however, would be lower - possibly $15 psf to $16 psf - considering rising supply, he said.

True Yoga was in the headlines last month when sovereign wealth fund Dubai International Capital snapped up a key stake in the firm.

RELOCATION BLUES

‘It is not easy to locate a site of this magnitude within such a short time.’ - A TRUE YOGA SPOKESMAN, on the fitness centre having to find another location after being told to leave its 30,000 sq ft outlet at OUB Centre

Source : Straits Times - 10 May 2008

HSBC Bank is extending the lease of its headquarters at Collyer Quay for another seven years after it expires in April 2012.

It will pay $143.1 million to rent HSBC Building until April 2019, said the building’s owner, CapitaCommercial Trust (CCT), yesterday.

CCT will spend up to $7 million on improvement works at HSBC Building. These are expected to start late this year, subject to approval.

CCT said in a statement that the forward renewal of this lease agreement ‘will ensure that HSBC continues to be one of CCT’s core blue chip tenants and provides long-term sustainable and stable income to CCT’.

The deal will ‘also ensure that HSBC Building will continue to enjoy 100 per cent occupancy over the long term’, in light of the fact that more office space will come onto the market after 2010.

About 1.11 million sq m of office space is expected to be completed between 2010 and 2012, according to the Urban Redevelopment Authority. Until then, the shortage of office space is likely to remain.

HSBC subsidiary, HSBC Institutional Trust Services, is a trustee of CCT and is considered an ‘interested person’ in this transaction, CCT said in its statement.

It also said property firm CB Richard Ellis has reviewed the lease agreement as an independent valuer and has confirmed that the rent is at market level.

Source : Straits Times - 8 May 2008

Tenants at the new Galleria see red over low traffic and sales that barely cover rent

FED-UP tenants at the posh new Galleria area of Suntec City Mall say shopper traffic is so low that they can barely cover the rent. Yet, they say, the landlord has not done much to help them out.

Ten tenants, including retail giants Robinsons and Ossia International, have written to ask the landlord, Suntec Reit, to address their continuing losses.

They also said that not enough is being done to promote the upmarket shopping zone.

Ossia executive chairman Joe Goh said: ‘We are paying Orchard Road rents. It’s too expensive, and the traffic is too low.’

Some retailers have stopped paying rent, another has closed down, while others are trying to find alternative tenants to take over their leases. There are some that are even talking about taking legal action against Suntec Reit.

ARA Asset Management, which manages Suntec Reit, has declined to comment.

The situation at Roots - one of Ossia’s two shops at Galleria - mirrored the complaints made by other tenants to The Straits Times.

Business is so poor that sales cannot even cover the monthly rent of more than $30 per sq ft (psf), and the shop now sells other brands to increase sales, said Mr Goh. It is also getting advice on taking legal action against the landlord.

‘We are requesting to pay $20 psf,’ he added.

Robinsons, which has the Fat Face and Principles outlets at Galleria, is facing a similar plight.

Mr Shia Yew Peck, general manager of finance and administration at Robinsons, said the rent at Fat Face is already 100 per cent of sales.

‘Rentals have to be commensurate with the traffic,’ he added.

Timberland, which opened a Galleria store in June last year, closed for a few months because of poor traffic, while another shop shut in January after just three months, said some tenants.

Average rents at Galleria, which is near the convention centre, are $24 psf, while the entire mall averages $10.92 psf.

The six tenants who spoke to The Straits Times yesterday are paying between $25 psf and $35 psf, and all are requesting relief in the form of lower rents, rental rebates or a few months’ rent waiver.

A typical rent guide would be the equivalent to 15 per cent to 25 per cent of sales, they say.

A comparable situation arose at The Cathay, which opened in 2006. Its landlord gave tenants rental rebates of up to 50 per cent to ride out the slow sales period.

A similar move does not look to be on the cards at the Galleria.

‘It’s got to the stage where it (property manager) won’t even listen to the tenants. All our pleas are ignored,’ said Mr Charles Guerrier, managing director of Oosters Belgian Brasserie.

Some tenants were offered rent reductions of 5 per cent, but they said the amount was too low.

A consultant, who declined to be named, said: ‘The rentals are actually not very high. It appears high only because of their poor sales. There are a lot of people walking through the mall, but it is just transient traffic.’

Still, there may be better news on the traffic front with the underpass connecting CityLink mall to Suntec City now open. The temporary bridge to Suntec City will be dismantled next Monday.

Meanwhile, at least two hard-pressed tenants have tried to find other retailers to take up their space - but to no avail.

Retailers in trouble

With sales barely covering the rent, tenants are in a bind.

• One shop has closed down.
• Some retailers have stopped paying rent.
• Other retailers are trying to find alternative tenants to take over their leases, without success.
• Yet others are considering taking legal action against the landlord

Deja vu

A comparable situation arose at The Cathay, which opened in 2006.  

• Its landlord gave early tenants rental rebates of up to 50 per cent to ride out the slow sales period.
• Galleria tenants are asking for a helping hand in the form of lower rents, rental rebates or a waiver of a few months’ rent.

Source : Straits Times - 8 May 2008

Hirsch Bedner and Irish private equity firm turning asset into boutique offices

AN Irish private equity firm and renowned international interior design firm Hirsch Bedner Associates have bought 700 Beach Road, currently a small office, home office development named In-City Lofts, for a total $70 million.

The duo will pump in a further $3.5 million to upgrade the eight-storey building and reposition it as a boutique office block.

700 Beach: The total investment of $73.5m works out to $1,097 psf of the enlarged total net lettable area

The building has 8,500 to 12,000 sq ft floor plates, 4.5-metre ceiling heights and a roof terrace with a full-sized lap pool and gym facilities. When the refurbishment is completed in August this year, the property - located between Golden Mile Tower and Golden Mile Complex - will be renamed 700 Beach.

The spruce-up will increase the building’s existing net lettable area by about 5,000 sq ft to 67,000 sq ft - of which 12,000 sq ft will be owned by Hirsch Bedner and 55,000 sq ft by Fine Grain Property Consortium (Singapore) Pte Ltd.

The all-in investment of $73.5 million by the two parties works out to $1,097 per square foot of the enlarged total net lettable area. Hirsch Bedner has taken about one-and-a-half floors while Fine Grain has bought the remaining six-and-a-half levels.

The site’s lease was extended to 99 years starting April 2004, after the building was completed.

The interior design process of the refurbishment for the entire building is being handled by Hirsch Bedner, which will also move into the space it has bought. This will be the Los Angeles-based firm’s regional office, housing its 80-strong design team.

Fine Grain has appointed Jones Lang LaSalle to lease its space in the building. ‘The gross monthly per square foot asking rent is in the high single-digit range and we’re targeting MNCs who’re sensitive to high office rents in the CBD,’ says JLL regional director and head of markets Chris Archibold. JLL is in talks with three potential tenants for areas of various sizes, Mr Archibold added.

Assuming an average rent in the high-single digit range, the net property yield would be about 8 per cent, analysts say.

Fine Grain is 65 per cent controlled by Ireland-based investors led by Ronald Bolger, Singapore’s Honorary Consul General in Ireland and former managing partner of KPMG Ireland.

The other 35 per cent is controlled by Singapore- based investors led by Colin MacDonald and Wan Fook Kong. (Mr MacDonald is also managing director of McCraic Holdings, owner of Molly Malone’s Irish pub and BQ Bar). Mr MacDonald, his brother Alastair (a chartered accountant), Mr Bolger and Mr Wan are directors of Fine Grain.

700 Beach Road is Fine Grain’s first property acquisition in Singapore and the firm has allocated about $70-80 million more for further property purchases here in the next six months or so. ‘We’re targeting undervalued assets, overlooked by investors perhaps because of the properties’ current use or the way they’re being managed. We can refurbish and reposition such assets and seek to add value to existing buildings rather than build something from scratch,’ says Mr MacDonald, who is also Fine Grain’s CEO.

Fine Grain’s portion of the acquisition will be funded by 70 per cent debt, provided by Munich-based Hypo Real Estate Group.

700 Beach Road was sold by In-Space Pte Ltd, whose shareholders include Wee Chwee Heng of Kumpulan Akitek.

Source : Business Times - 7 May 2008