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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