Govt gives assurance to calm office space market

July 5, 2007

Govt gives assurance to calm office space market

URA promises to provide more data; plot for temporary offices in Scotts Road released

By Fiona Chan, Property Reporter


THE Government is taking a host of steps to calm the office property market amid an acute shortage of space that has sent rents soaring.

It is releasing sites for office development and has promised to provide more detailed information about the market.

This comes as prime office rents in May jumped 85 per cent over a year ago, said property consultancy Cushman & Wakefield yesterday.

A 1.04ha plot in Scotts Road earmarked for temporary offices was launched yesterday. It will be the first-ever office site to have a 10-year lease, said the Urban Redevelopment Authority (URA).

The short-term lease is crucial because while offices are in short supply now, about 12.6 million sq ft of commercial space may be completed by 2010 - with most able to be used for offices, said the URA. About 2.6 million sq ft of this space is likely to come from the Marina Bay Financial Centre.

But only about 2.37 million sq ft of offices were occupied each year between 2004 and last year, said the URA. This may lead to an oversupply problem after 2010, which may be why the lease for the Scotts Road site is 'not likely to be renewed'.

The agency expects the site to host a low-rise office building 'that can be built quickly in about a year'.

It should have three to four storeys with a maximum gross floor area of 168,627 sq ft, it added. The tender for the site will be based solely on price and closes on Aug 1.

If the URA receives good response to this site, it will release more such sites that it has already identified.

Property consultants said this could prove a viable short-term solution to the office squeeze.

'The beauty of transitional sites is that they will help to ease the supply crunch to some extent, but can minimise the possibility of a supply glut in the future,' said Ms Tay Huey Ying, director of research and consultancy at property firm Colliers International.

However, some market watchers cautioned that the project may prove financially tricky.

'It is going to be a cash play for any developer coming in,' said Mr Donald Han, managing director of Cushman & Wakefield.

He believes the site could sell for $150 psf per plot ratio, or about $25 million, and that the developed building would fetch monthly rents of up to $8 per sq ft.

This puts the site's yield at up to 15 per cent - not particularly attractive for a 10-year leasehold site, he said.

Apart from this site, JTC Corporation is to release a slew of business park sites in the next months, the URA said. These will provide ano- ther 1.3 million sq ft of business park space, which can be used to house the backroom operations of some firms.

The URA also said it would release more detailed information about office rentals and vacancies. This data, due out on July 27, will be 'grouped based on the geographical location of the properties, among other things'.

And in an unusual move, it advised the public to interpret rental projections by consultants with caution. In particular, it pointed to a recent report by property firm Savills Singapore that warned Singapore's office rents could surpass Hong Kong's by the end of next year.

'The consultants may not have taken into consideration the additional supply of office and business park space that will be generated from the latest Government initiatives,' the URA said.

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Thursday, July 5, 2007

Time to play it cool

Treat bullish projections with care, warns URA, as it makes short-term office site available

Joseph Yadao
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FOR the second time in three days, the Government has stepped in with a cautioning note to calm the bullish property sector, even going so far as to single out parties that may have helped fan the flames.

Urging the public to take media reports of rising office rentals with a pinch of salt, the Urban Redevelopment Authority (URA) said "the public should take into consideration information on future supply of office space".

"One example was the recent projection by property consultant Savills that office rentals in Singapore could surpass those in Hong Kong by end-2008," the URA said in a statement to announce the launch of the first transitional office site at Scotts Road (see map).

"The public should interpret such projections with caution. Whether such projections materialise or not depends on many factors ... The consultants may not have taken into consideration the additional supply of office and business park space that will be generated from the latest Government initiatives."

To give the public a "more balanced perspective", the URA will soon release more detailed rental and vacancy data on office space.

Meanwhile, it has put up for tender the 1.04-ha land parcel next to the Newton MRT station. With a 10-year lease, a three- to four-storey building yielding 15,666 square metres of transitional office space could be ready within a year. If response is good, said the URA, the Government will release more of such sites for tender.

On Monday, in releasing the latest figures on private home prices, the authority had likewise warned would-be home buyers to be savvy about upcoming supply.

When contacted yesterday, Savills declined to comment on the URA statement. All the director of Savills Residential, Mr Ku Swee Yong, would say was: "These measures reaffirm the very pro-business stance of the Singapore Government. The URA is reacting swiftly to the needs of enterprises growing their operations and tapping on the rosy economic conditions here."

But analysts point out the consultancy firm was not the only one talking up the market.

"The media has played its role in increasing the profile of the property market, increasing the speed of the property sector," said Mr Vasu Menon, chief editor of finatiQ.com.

For instance, an HDB flat in Tiong Bahru that fetched $720,000 and the $5,100-per-square-foot price tags for apartments at The Marq had made the headlines, and even front pages, of newspapers.

"The public will worry about these media reports. People could get scared, thinking that they missed the boat," said Mr Menon.

However, he noted that it was unusual for the Government to single out a particular company — a sentiment echoed by property analysts.

"It is unfair to tar every consultant with a single paintbrush," said Mr Nicholas Mak, director of research and consultancy at Knight Frank. "However, Savills may have said something that does not serve the nation's interests."

While agreeing, Chesterton International's head of consultancy and research Colin Tan observed that a shortage of office space did exist, and that would inevitably drive rents up.

"Everyone who is renewing leases is facing rents double or triple their existing ones," said Mr Tan. "If (the URA) doesn't think there's a strong demand for office space, then why provide transitional office sites?"

Apart from the Newton site, the URA has also launched for public tender a 0.25-ha commercial site at Anson, with the potential to yield a maximum permissible gross floor area of 23,418 sqm. A developer has committed to bid at least $116.2 million for it.

Together, both sites are expected to "meet demand for office space in the short term". The announcements come two weeks after the Government said it would make available sites for 534,000 sqm of commercial space in the second half of this year.