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Published July 27, 2011

Views divided on Paya Lebar site

Second commercial site could attract fewer bids, some consultants say

By KALPANA RASHIWALA


PROPERTY market watchers have given mixed views on the level of interest likely to be shown by bidders for the second commercial site at Paya Lebar launched yesterday by Urban Redevelopment Authority.

Some believe the top bid could exceed the $872 per square foot per plot ratio (psf ppr) fetched for the first Paya Lebar site, which was sold in April, citing a shift in demand to outside the CBD among big occupiers. However, others highlight that the substantial amount of CBD office supply which will manifest itself in the next few years, including the Marina Bay and Ophir-Rochor projects to be developed by a Khazanah- Temasek tie-up, could mean there will be less incentive for big office occupiers to decentralise.

The latest plot has minimum office and hotel components, stipulated at 40 per cent and 15 per cent respectively of the maximum gross floor area of about 935,577 sq ft. No residential use is allowed. The tender closes on Oct 18.

The earlier site was sold for $585.6 million or $872.16 psf ppr to a consortium comprising Low Keng Huat, Guthrie GTS and Sun Venture Commercial. The site drew 10 bids. At least 80 per cent of the maximum GFA for that site was stipulated for office use.

For the latest plot, Cushman & Wakefield reckons the top bid could be about $960 psf ppr (or $897.6 million) - 10 per cent higher than the price for the maiden plot. The tender may again draw 10 bids.

Credo Real Estate reckons the top bid for the latest plot may be in the region of $800-950 psf ppr (or $748.50-888.80 million). The tender may draw six to nine bids, predicts Credo executive director Ong Teck Hui. 'Since the tender closing is nearly three months away, the actual bids and tender participation will be affected by how current global as well as local market uncertainties pan out.'

Another seasoned property consultant predicts that the latest plot may fetch fewer bids, about half a dozen, and the top bid below that for the earlier plot.

For the site launched yesterday, apart from the minimum 40 per cent and 15 per cent of maximum GFA which has to be set aside for office and hotel uses respectively, the remaining 45 per cent shall be for additional office and/or hotel use or for other commercial uses such as retail, entertainment and food.

No residential use will be allowed in the office component of the development.

'The proposed office layout for the development on this land parcel will be evaluated to ensure that it is in line with typical quality office layout that meets the needs of genuine office end-users at the development application stage,' said URA.

If the developer seeks to subdivide the office space and seek strata titles for individual office units for the purpose of selling them, a minimum strata unit size of 100 sq metres (1,076.39 sq ft) is encouraged by URA.

All the space for retail and activity-generating uses in the project shall be held under a single strata lot. It may not be subdivided into smaller strata units for individual sale. This is to ensure the retail space continues to be well managed. A section of Geylang River flows through the sale site. 'Recreational facilities and communal spaces such as boardwalks, promenades and bridges can be built over the waterway or along the landscaped river banks to enhance the attractiveness and uniqueness of the proposed development,' URA said.

Cushman Singapore vice-chairman Donald Han said: 'We expect the same enthusiastic response for this site as we saw for the earlier plot.' He cites a shift in demand for office space to non-CBD locations given the rise in Grade A CBD office rentals. 'Last year, seven out of the eight office or business space leasing deals of 100,000 sq ft or more involved CBD locations. So far this year, we have seen only six deals of this size and of which just one has been in the CBD - Marsh & McLennan at Asia Square Tower 1. For large occupiers, monthly rentals for CBD offices are breaking the $10 psf level. Business park space in places like Changi and Jurong could cost about $4 psf while suburban office space may cost about $6 psf,' said Mr Han.

However, he points out that during the heyday in 2007-2008, the rental gap between CBD offices and suburban offices/busi- ness park space was over $10 psf. 'If the CBD office supply continues to build up, this differential is likely to narrow further. This will mean there is less incentive for decentralisation.

'Taking this into account, and the latest plot having a less prime location and the bigger deal size this round, the top bid (in psf ppr terms) is likely to be lower than that for the first site.'