By Venus Hew

SINGAPORE : A billion-dollar office block is being erected at the site of Market Street Car Park in Singapore’s financial district.

As the market for prime-grade office space is softening, property analysts are wary that the developers may not achieve the rentals they are seeking.

Property group CapitaLand, together with CapitaCommercial Trust (CCT) and Mitsubishi Estate Asia (MEA), will jointly develop the former Market Street Car Park into a new Grade A office tower.

The demolition of the car park was completed in December 2011.

Under the agreement, CapitaLand, CCT and MEA own 50 per cent, 40 per cent and 10 per cent interest respectively in MSO Trust, an unlisted special purpose sub-trust set up to undertake the development.

The office tower, called CapitaGreen, will cost S$1.4 billion to develop.

The new building, which sits on the 58,954 square feet site, will also have a change of address to 138 Market Street to mark its new beginning.

When completed, CapitaGreen will have about 700,000 square feet in lettable office space over 34 levels, with around 180 parking lots.

By then, analysts said CapitaGreen will provide the largest office supply around the Central Business District (CBD), once completed at the end of 2014.

Lynette Leong, CEO of CapitaCommercial Trust Management, said: “Our estimate is that by then, market rent should be between S$12 to S$14 per square foot for grade A office space, and given the high specification of this building,
we should be able to attract tenants who are able to afford that kind of rental.”

Nicholas Mak, executive director of research and consultancy at SLP International, said: “Any new building that is going to be completed in the next four years will have to be price takers. They can ask for a certain rental, but they will also have to be mindful of what their competitors are charging.”

Colin Tan, head of research and consultancy at Chesterton Suntec International, said: “They have started their marketing pretty early, given the completion is only end-2014. I think…right now, the office market is on the verge of turning and we may be in the down cycle. So, I think they may be anticipating this and may be trying to secure best rentals that they can fetch right now.”

Helping the effort, CapitaLand is flying the green flag over the project, saying it will be the most environmentally-friendly building in Singapore’s CBD.

1964: Market Street Carpark was Singapore's first multi-storey carpark, providing about 700 parking spaces in the heart of the city. -- ST FILE PHOTO

THE shortage of parking spaces in the city could get even worse with Capitaland considering redeveloping the Golden Shoe Carpark now that its revamp of the former Market Street Carpark is under way.

The 10-storey Golden Shoe, in Market Street, a stone’s throw from Raffles Place MRT Station, contains 1,053 parking spaces with retail and food outlets on the first three levels.

CapitaLand group president and chief executive Liew Mun Leong said it was always the company’s intention to redevelop both carparks.

‘It’s a matter of timing… In 1996, when I was already (chief executive), we already had plans for both carparks. We need the approval of the Government… and then we have to see the timing of the demand for office space.’

Mr Liew added that the Golden Shoe could have more office space and a larger floor plate than CapitaGreen, the name for the Market Street Carpark development. He was speaking on the sidelines of the CapitaGreen ground-breaking ceremony yesterday.

Motorists will not welcome a redevelopment of Golden Shoe Carpark.

The area’s parking crunch has long been a gripe of motorists, especially after the introduction of the Land Transport Authority’s policy setting a minimum parking requirement for each building according to its type of use and gross floor area (GFA).

Although developers can decide whether to use their GFA to provide parking spaces over and above the minimum requirements, many building owners prefer to use the space for higher- yield commercial use, resulting in massive office blocks with tiny carparks.

CapitaGreen is set to go the same way, with about 180 carpark spaces set aside for the estimated 6,000 to 7,000 workers that the new building could support.

The new 40-storey Grade A office tower will have a net lettable area of about 700,000 sq ft.

CapitaGreen is also set to be one of the greenest buildings in the Central Business District, with environmentally friendly features, such as a sky forest on top of the building, larger windows to let in more light and a cool void to allow fresh air to circulate through the building’s core.

These features will help achieve energy savings of up to 30per cent in the block, which is due to be completed in late 2014.

Rents are expected to be between $12 and $14 per sq ft. Current Grade A office rents are estimated to be just under $9 psf.

The project’s three-year lead time will bode well for its leasing plan, said CBRE executive director of office services, Mr Moray Armstrong.

He said that while immediate office leasing demand is expected to be slow, the turnaround in rents typically takes two to three years. ‘(The project) is likely to come on line at a time that we expect the market to turn and there will be a strong economic resurgence in Singapore. The market has traditionally delivered that and there’s no reason to suspect that will change for this cycle.’

By Lynda Hong

Singapore skyline (Photo by: Hester Tan, channelnewsasia.com)

SINGAPORE : Experts have said that commercial and industrial property will continue to outperform the office market this year.

This comes after Urban Redevelopment Authority (URA) figures showed higher quarterly prices for industrial (4 per cent quarter-on-quarter) and commercial assets (13.8 per cent quarter-on-quarter). Meanwhile, city rentals have slowed.

The trend of cooling office rents is clear. While URA’s rental index rose 8 per cent last quarter from a year earlier, it was the slowest rise in 2011, up by just 0.6 points from the previous quarter.

Chris Koh, a property analyst, said: “Many have kept their space, renewed their leases. If they did take up more space, they were a bit more conservative in taking up the space. So we did not see rental prices increasing at such a large volume.”

A brutal combination of economic uncertainty and an oversupply of office space has set the tone for 2012.

Colin Tan, research consultancy head at Chesterton Suntec International, said: “Grade A depends on banks and financial institutions. And the outlook for this industry has been, in a sense, depressed looking forward. So the demand from tenant group has shrunk. So I expect office numbers to weaken, led by Grade A.”

And in the persistent low interest rate environment, property analysts note that foreign investors have been pushed to look at buying commercial and industrial properties instead, especially after the recent Additional Buyer’s Stamp Duty on residential property.

Angela Lee, managing director of Lianco International Property, said: “Industrials like marine and chemical industry are expanding this year. Therefore, we expect pricing at 5 per cent up, minimum for the warehouse property sector.”

With output from the marine and offshore sector expanding by 19 per cent last year, experts expect strong demand for industrial space, while upcoming shopping malls should be easily absorbed.

Retail property is expected to face the least headwinds. Despite some fears of an oversupply in the coming years, some analysts said population growth has in fact reduced retail space per capita.

Vacancy rates up as global slowdown hits financial services sector: Report

'Lower rents' for prime office space --ST ILLUSTRATION: ADAM LEE

The weakening economy is starting to take a toll on prime office space in Singapore, according to a new report.

Vacancy rates in these buildings crept higher as rents slipped in the final quarter of last year, said the report compiled by Savills Singapore.

The firm attributes these trends to weakening sentiment in the job market as the economy slows. One important sector that accounts for a large part of office space, the financial services and banking sector, has been hit by the global slowdown.

Leasing activity in the grade A office sector has become more subdued, said the report. It pointed to pockets of space still available in newly completed projects and a slower take-up rate for projects that will be ready within the next two years.

By Avelyn Ng

SINGAPORE: Vacancy rates of Grade A offices in the central business district (CBD) rose to 6.9 percent in the fourth quarter last year, according to property consultancy Savills Research in its latest report on the office sector on Wednesday.

It said vacancy rates for such premium office space have remained below 5 percent over the last five quarters.

The report also pointed out that the Shenton Way area recorded the largest vacancy increase of 8.8 percentage points to 14.7 percent by the end of the fourth quarter. This arose mainly from unlet space in newly completed buildings.

Grade A office rentals also slipped 1.5 percent to S$8.71 per square foot per month (psf/mth) in Q4 from S$8.86 psf/mth in Q3.

Savills said “this confirms that Grade A office rents have now softened and are now in the early stages of a downswing.”

However, average rents last year are still higher than 2010 by 7.8 percent year-on-year.

The report added that investment activity has picked up in the fourth quarter of last year. It pointed out that six office buildings were sold for a total of S$2.7 billion.

Meanwhile, capital values of Grade A offices fell by 3.8 percent on-quarter to S$2,550 per square foot in Q4. However, they were up by 8.5 percent from a year ago.

Looking ahead, Savills said the worsening economic outlook is likely to place more companies on a cautious mode and they may hold off expansion plans or reconfigure their offices to sublet excess space.

Leasing activity may hence remain subdued and put downward pressure on rents as tenants factor-in expectations of a softening market.

Savills expects overall Grade A rents to trend downwards by 15 percent in 2012, with capital values softening by 10 percent.

- CNA/al

CapitaCommercial Trust says its rates are below market average

Trust management chief Lynette Leong believes CCT will be able to achieve higher rents for leases renewed this year at its Raffles City Tower (above) and Capital Tower properties as their rates are lower than the average market rent for grade A offices. -- PHOTO: RAFFLES CITY

CAPITACOMMERCIAL Trust (CCT) expects to raise rents at some of its properties even though the year ahead is anticipated to be less buoyant for the office property segment.

The trust has a portfolio of nine commercial properties in Singapore, including Raffles City, HSBC Building and Golden Shoe Car Park.

Speaking to media and analysts at its fourth-quarter financial results briefing, CCT Management chief executive Lynette Leong said she is positive that the trust would be able to achieve higher rents for leases renewed this year at its Raffles City Tower and Capital Tower properties.

This, she added, is because the rates now being charged at those properties are lower than the $11 per sq ft (psf) a month average market rent for grade A offices.

Rents for CCT’s office properties were $9.50 to $12 psf a month as of the fourth quarter of last year.

Any possible rent rises at Six Battery Road will depend on prevailing market conditions when the new lease is signed, she added.

One George Street has an embedded yield protection which requires CapitaLand to provide income support for protection against the rental risks of the building.

In a separate announcement, CCT said it would be receiving $5 million under this protection for the year which ended last Dec 31.

‘Any negative rent reversions that may occur this year may not be significant. However, we are mindful that the negative rent reversions that occurred over the last two years or so will continue to flow through the year, which could still continue to add pressure to CCT’s rental stream.’

The occupancy level for CCT’s grade A office properties was 93.9 per cent, above the industry’s average occupancy level of 88.4 per cent.

Ms Leong said some tenants are hesitant to commit to a new lease.

However, she added that there are also other tenants who are taking extra space, some by between 30 per cent and 50 per cent.

The trust’s distributable income for the fourth quarter, which ended last Dec 31, fell 0.5 per cent to $54.4 million, with gross revenue falling 2.4 per cent to $89.9 million.

This was attributed to a lower revenue from Six Battery Road and the development of a Market Street project.

Performance for the full year was equally subdued.

Distributable income dipped 3.7 per cent to $212.8 million, while full-year revenue fell 7.8 per cent to $361.2 million. This was partially due to the sale of Robinson Point and StarHub Centre.

CCT’s distribution per unit was 1.92 cents for the fourth quarter and 7.52 cents for the full year.

The trust’s distribution yield is 6.8 per cent based on the closing price of $1.11 a unit on Thursday.

A distribution of 3.75 cents has been declared for the period, to be paid on Feb 29.

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