URA stops conversion of offices in central area

Govt halts CBD office redevelopment to curb office space shortage

By Daryl Loo, Channel NewsAsia | Posted: 21 May 2007 2236 hrs


SINGAPORE: The government has stopped allowing building owners to convert offices in the central area to other uses to prevent aggravating the crunch in office supply.

This will affect buildings in the Central Business District, Outram, Newton and Orchard areas for at least the next year and a half.

The space shortage has caused prime office occupancy to hit over 99% and rents to jump by nearly 20% so far this year.

A number of old CBD buildings had been approved in recent years to be converted into condominiums, as owners sought to rejuvenate ageing properties.

But the government has decided not to approve any more such applications, for now.

National Development Minister, Mah Bow Tan, told Parliament: "Many of these buildings are in reasonably good condition and can still meet the needs of most office users, especially in the next 2 to 3 years.

"While the government does encourage building owners to rejuvenate and redevelop their older buildings, such redevelopment is not appropriate at this point in time. It will worsen the office supply shortage and hinder our efforts to attract financial institutions and other businesses."

The new ruling affects UIC Building, Marina House and San Centre whose applications have been turned down.

Industry watchers say this will help to maintain the existing office stock but does nothing to solve the problem of a lack of new supply.

Donald Han, Managing Director at Cushman & Wakefield, said: "The basic problem about the Singapore office market is really the acute supply, and acute supply cannot be solved overnight. You'll need a gestation period of about three years at least, to release the land, for the land to be developed, constructed and to be ready. So I think any alleviation of the problem will only be solved come 2010 or beyond."

Analysts expect residential projects already being sold in the CBD to benefit from the change, although they do not see prices going through the roof.

Nicholas Mak, Knight Frank's Consultancy & Research Director, said: "If home prices in the CBD were to rise too sharply, they will meet some buyer's resistance because there is ample supply of alternative housing just a short drive outside the CBD. For example in the Novena area, the Tanjong Rhu, East Coast areas, and also in the Telok Blangah area."

URA says it is also looking for new sites for low-rise "transitional offices" on short leases of 10 years or less, which can be built in a year. - CNA/ir

Published May 22, 2007

URA stops conversion of offices in central area

By ARTHUR SIM


(SINGAPORE) The Urban Redevelopment Authority (URA) has called a halt to all conversion of offices in the central area to curb further depletion of existing stock.

In a statement released yesterday, it said this move will take immediate effect and will be extended until Dec 31, 2009.

'Conversion' includes redevelopment and major addition and alteration (A&A) works on office space. Areas in the Central Region affected are Orchard, Newton, Rochor, Singapore River, Outram and the Downtown Core.

URA also said it plans to release details on making land available for low-rise 'transitional' office space soon.

But based on its data, only 330,000 sq m of new office space is expected to be completed between now and end-2009.

'This new supply will be insufficient to meet the projected increase in demand between now and end-2009,' URA said.

A spokesman for URA added: 'We have also granted Provisional Permission for other office buildings for redevelopment and conversion to residential and other non-office uses during this period. However, we do not normally release detailed information, such as names of buildings, on Provisional Permissions as these applications may be subject to further changes by the building owners.'

Since 2005, URA says only three buildings have Written Permission for redevelopment: Natwest Centre, Robina House, and HMC Building.

United Industrial Corporation (UIC) recently acquired the remaining 21.2 per cent of the units at UIC Building with plans for redevelopment.

UIC group general manager Vito Koh said it still intends to proceed with a residential redevelopment and will follow up with necessary submissions for building approval.

'URA is concerned about the depletion of current stock of office space, but we are not going to tear down the building overnight,' he said.

'We see no reason to follow with a knee-jerk reaction,' he added.

Mr Koh also revealed that UIC Building still has tenant leases that run into 2009.

CB Richard Ellis executive director (investment properties) Jeremy Lake believes that URA's latest announcement could have some material impact on developers.

'My own judgement is that in today's market, it is better for a developer to do residential,' he said.

One of the main reasons for this is a residential development can be sold 'off plan' or before construction even begins. Office buildings are rarely sold this way.

Mr Lake also points out that the building efficiency of an office building is usually around 80 per cent while that of a condo can be 95 per cent or more.

The construction costs of high-end residential buildings at about $350 psf - compared with $450 for a high-tech office - weigh in their favour as well.

Knight Frank director and head of research and consultancy Nicholas Mak believes URA's decision to curb residential development signals that the government is monitoring office rents and overall operating costs in Singapore.

Saying that the move could slow the rise of office rents, Mr Mak said: 'The government does not want Singapore to lose its competitive edge.' Already, Knight Frank projects Grade A office rents to rise by 50-60 per cent this year.

As Mr Mak also notes, office values have been increasing so he does not expect many residential conversions anyway.

Indeed, the trend may be in reverse.

According to data from URA for Q1 2007, several office buildings in the Central Region have already received approvals for A&A or redevelopment.

Hong Leong Group is one developer that may also consider redeveloping its Marina House into a new office block rather than apartments, while the group's listed arm City Developments Ltd (CDL) is studying the feasibility of maximising the plot ratio of its Corporate Office building at Robinson Road to 11.2 from the existing 8+.

CDL group general manager Chia Ngiang Hong said it has no intention to convert any more buildings to residential other than One Shenton either.

City condos could, of course, now increase in value. 'If the supply of residential units in the central area is reduced, we will have to review the prices of the remaining units in One Shenton in due course,' Mr Chia added.

That redevelopment of the CBD could now be put on hold is perhaps ironic, given that rejuvenation of the city was once lauded. Colliers International director for research and consultancy Tay Huey Ying adds: 'The temporary disallowing of conversion of office use to other uses, however, may result in some sites not attaining its highest and best use in the short to medium term.'

May 22, 2007

Govt to disallow other uses for downtown offices

Policy, effective till end of 2009, comes in bid to ease office space crunch
By Fiona Chan


THE Government will temporarily stop allowing offices in the central area to be converted to other uses, in a bid to ease the office space crunch.

The change, effective immediately until the end of 2009, was announced by the Urban Redevelopment Authority (URA) yesterday in a bid to halt more space coming off the market.

An acute space shortage, coupled with growing demand from expanding businesses, has pushed rents to record highs and sparked worries that firms might relocate or downsize their operations in Singapore.

The URA said the new policy will apply to developers who have asked to convert offices into homes or other non-office types of space.

It told The Straits Times that it had recently turned down applications for conversions on three sites: UIC Building, Marina House and Sans Centre.

There are no other outstanding applications for conversions, it said.

In the past three years, at least five buildings in the central area have been converted from offices, including condominium One Shenton, which was the former Robina House, and upcoming service apartments Ascott Raffles Place, the old Asia Insurance Building.

This has removed more than 65,000 sq m of office area, estimated Mr Nicholas Mak, a director of research and consultancy at Knight Frank.

Partly because of this, rents in the central area jumped by up to 12 per cent in the last month to record levels, a report by property consultancy Cushman & Wakefield yesterday showed.

The URA said yesterday that about 330,000 sq m of office space is expected to be completed between now and the end of 2009 - not enough to meet projected demand. But the situation is expected to improve in 2010, with a further 330,000 sq m of office supply.

National Development Minister Mah Bow Tan told Parliament yesterday that converting office buildings aggravates the shortage in two ways - by immediately removing supply from existing stock and forcing firms in the demolished buildings to find other space.

'Many of these buildings are in reasonably good condition and can still meet the needs of most office users,' Mr Mah said.

He added that while the Government encourages redevelopment of older buildings, such moves are 'not appropriate at this point in time'. But 'when the supply situation improves, we will remove this restriction'.

Property consultants welcomed the move, although most saw it as a stop-gap measure that would not fully resolve the demand-supply mismatch.

Ms Tay Huey Ying, a director for research and consultancy at Colliers International, also noted that the change would not apply to buildings slated for redevelopment into new offices, even though such redevelopment would also remove supply from the market.

But Mr Mak said that while rents will keep rising, the policy may soften the pace of increase. However, he pointed out that office values have risen by so much that even without this policy, most office owners would likely not convert their offices to other uses.

Property developers, meanwhile, were nonchalant about the change.

Mr Vito Koh, the group general manager of UIC Building's owner, United Industrial Corporation, said that while the group is still considering converting the building to residential use, it may do so after 2009.

City Developments also said the change will have 'no impact' on its development plans as it has no intention to convert any more buildings.

However, it may benefit from the policy in another way: It may be able to raise prices of its remaining One Shenton units if the potential supply of homes in the central area is capped.

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