Published September 24, 2008

Lower top bids expected for Mountbatten site

Analysts also doubt need for more transitional offices


A 15-YEAR leasehold transitional office site in Mountbatten Road, launched yesterday, is expected to fetch top bids that are 15-40 per cent lower than a nearby site sold in January this year, according to some property consultants.

Some analysts again questioned the need for the government to keep releasing transitional office sites, given that a substantial supply of Grade A office space will be completed from 2010.

Separately, a UBS Investment Research report dated yesterday says that a 1.5-6 per cent cut in the number of jobs in Singapore's financial industry could lower UBS's forecast of monthly prime office rents from $16.20 per square foot (psf) currently to $8.60-9.50 psf in 2012 - a 41-47 per cent slide. This is more pessimistic than an earlier UBS forecast of a 34 per cent fall to $10.50 psf by 2012.

UBS also cited Urban Redevelopment Authority (URA) data showing that median office rents in the CBD had fallen in July. Monthly median rents in the Raffles Place, Tanjong Pagar and Cecil Street areas are now $12.50 psf, $7.28 psf and $6.50 psf, compared with $14.98 psf, $7.49 psf and $6.65 psf in June.

Cushman & Wakefield managing director Donald Han reckons that the highest bid for the Mountbatten Road plot will be $55-59 psf per plot ratio (ppr) - about 15-20 per cent less than for the earlier plot, which fetched $69.17 psf ppr. He said that the latest plot is farther from the future Mountbatten MRT Station - compared to the earlier plot which is just next to the station - and that sentiment in the office market is weaker now.

CB Richard Ellis executive director Li Hiaw Ho puts the range of top bids at $40-50 psf ppr - a 28-42 per cent decline from the price fetched by the nearby plot. Mr Li bases his estimate on the assumption of average gross monthly rent of $5 psf for a new office development on the site and a 10 per cent annual net return for the investor, given the short period of 13-14 years to recoup the investment.

Jones Lang LaSalle's South-east Asia research head Chua Yang Liang reckons that demand for the latest site will be lukewarm given the spate of negative news in global financial markets.

Cushman's Mr Han says that the plot is also less attractive than another transitional office site in Mohamed Sultan Road launched for tender last month by URA. 'The Mohamed Sultan site is in a superior location, given its proximity to the CBD, although it has a narrow configuration which could make it harder to maximise the net lettable area and floor-plate efficiency for a new development,' he said.

URA has launched eight transitional office sites since it introduced the scheme in July last year.

'Such parcels on short 15-year leases were mooted primarily to cater to the office supply shortage situation prevalent a year ago. However, market fundamentals have changed since,' CBRE's Mr Li said.

'Based on our estimated average annual demand for office space of 1.6 million sq ft, combined with the 1.7 million sq ft and 2.8 million sq ft that will come on-stream in 2009 and 2010 respectively, there is no supply crunch in the near future. We believe the government should review the necessity of launching more transitional offices in the immediate future.'

Agreeing, Savills Singapore's director of marketing and business development Ku Swee Yong said: 'By the time a development on the Mountbatten Road site launched today is completed, say in Q2 2010, there would be a large supply of Grade A office space in prime locations. We can say the objectives of the transitional office space programme have been met.'