Without sleaze, redevelopment might be the next act for Orchard Towers

Sep 05, 2022

Because I frequented the Irish bar Muddy Murphy's in the late 1990s and early 2000s, I am fairly familiar with Orchard Towers, which has a reputation for being sleazy. The bar was located in what was formerly known as Orchard Hotel Shopping Arcade (now renamed Claymore Connect), a short distance from Orchard Towers.

When I read the recent news that all public entertainment licences for businesses there would not be renewed as part of the government's ongoing efforts to manage the law and order situation at the building, I was flooded with memories of seeing Orchard Towers from a distance and wondering what was going on in some of the establishments there. The police will not issue any new public entertainment licences to Orchard Towers enterprises, and current licences will not be renewed beyond May 31, 2023.

I can relate to the media-reported dismay of impacted nightclub and bar owners. Before April, nightlife firms were permitted to completely resume after activities were suspended for about two years as Singapore fought to contain the spread of the Covid virus. The nightlife industry is seeing a business recovery. However, the Orchard Towers runway for nightclubs and bars is being shortened.

Possibly, the filth connected with Orchard Towers will continue to exist even after the nightclubs and bars cease operations, since The Sunday Times reports that sex-offering beauty clinics operate on the premises.

Strata owners of retail lots housing nightclubs and bars at Orchard Towers would undoubtedly be worried that if the highest and best use of the units was for nightlife activities, then utilising the space for other uses will have a detrimental economic impact.

Existing conditions need a repositioning of many malls in light of the expansion of internet commerce and shifting consumer, lifestyle, and entertainment tastes. According to the Urban Redevelopment Authority (URA), the median retail space rental rate in the Orchard Planning Area in Q2 2022 is 16% lower than in Q2 2020, based on lease commencement.



Changing the tenant mix in strata-owned retail spaces can be far more difficult than in malls controlled by single proprietors. Also, older structures, such as Orchard Towers, which was constructed in the 1970s, may necessitate large capital expenditures.

Diverse owners would require extensive coordination to agree on an appropriate lease plan for a strata-owned retail structure, as well as a spending plan for the capital expenditures and branding required to reposition the property.

Possible en bloc

Nonetheless, a property's location has a significant impact on its value. Orchard Towers is situated on a freehold property with high exposure, in close proximity to Ardmore Park and The Claymore luxury apartments.

Earlier this year, strata owners authorised the collective sale of freehold land plots with a plot ratio of 4.91 and a site area of about 6,130 square metres, which house commercial units, apartments, and parking spaces for Orchard Towers, at the reserve price of S$1.6 billion.

Listed regional real estate business Hiap Hoe, which owns 59 strata lots, 21 of which are stores and 38 of which are offices, would benefit from an en bloc sale. In 2021, the occupancy rate of Hiap Hoe's apartments was 47%. Hiap Hoe stated in its most recent earnings report that it is questionable if the aforementioned collective sale would occur or be completed within the next 12 months.

With the non-renewal of public entertainment licences for Orchard Towers enterprises, the motivation for some owners to sell may increase. It will be difficult to reposition the asset after the nightclubs and bars cease operations. Meanwhile, rising interest rates may exacerbate the burden of loan-paying property owners. There is no pressure from the expiration of the land lease, but headwinds may cause some owners to be more flexible with pricing.

Renewal of Orchard Road

If Orchard Towers were sold to a single owner and refurbished, it would contribute to the revitalization of the western end of Orchard Road near Tanglin. Anticipate the emergence of a new ultra-luxury complex that caters to the area's rising number of rich residents.

Redevelopment of Orchard Towers can complement the redevelopment of Tanglin Shopping Centre, which was sold en bloc to a Tanoto family firm for S$868 million earlier this year.

Hotel Properties Limited (HPL) may be able to contribute to revitalization efforts in the nearby area by completing a mega-development encompassing land tracts that would contain the newly renamed voco Orchard Singapore Hotel, Forum The Shopping Mall, HPL House, and Four Seasons Hotel Singapore.

As seen by the increase in family offices, now is the ideal time to invest in revitalising Orchard Road assets, as more ultra-wealthy individuals are relocating here. Singapore is attractive to more premium visitors because to its excellent infrastructure, public health, and safety, as well as its shown capacity to host big events and conventions.

If a tycoon acquires Orchard Towers, there will be a further concentration of ownership of Orchard Road assets in a few hands, and prospects for smaller players to hold the occasional office or retail lot in this premium region would diminish. The Ng family of Far East Organization, Ong Beng Seng of HPL, the Kuok family of Kuok Group, the Woo family of Wheelock, the Shaw family, and Kwek Leng Beng of City Developments Limited now possess vast tracts of prime Orchard Road area real estate.

The URA announced in March that commercial developments and the commercial components of mixed-use complexes in Singapore's Central Area are no longer permitted to be strata split into individual apartments.

Due to the dispersed ownership of strata-subdivided developments, maintenance and upkeep are typically problematic. Obtaining consensus to routinely maintain and/or update the building, which might result in deteriorating physical condition, and curating a desirable tenant mix may be challenging for these developments.

Should the rather infamous Orchard Towers be renovated, memories will be gone. However, this may be a worthwhile price to pay if new goods develop that better fulfil new living, working, and recreational demands and enhance Singapore's urban landscape.