Land market springing to life: Maybank Kim Eng

The 99-year leasehold Beach Road plot, which includes the area's old police station, was put up for sale after a developer committed to bid at least $1.138 billion. High offers will boost optimism in the sector and likely lift property shares.
The 99-year leasehold Beach Road plot, which includes the area's old police station, was put up for sale after a developer committed to bid at least $1.138 billion. High offers will boost optimism in the sector and likely lift property shares.ST PHOTO: DAVE LIM

Bids for commercial site in Beach Road will signal health of sector

Singapore's land market has sprung to life and the property sector is about to get even busier in the months ahead, according to a report released on Monday.

Just how robust the sector is will get an early test tomorrow when tenders close for a prime commercial site in Beach Road, noted the Maybank Kim Eng report.

It said a good result for the site will boost optimism across the sector and likely lift property shares, from real estate investment trusts (Reits) to developers.

The 99-year leasehold Beach Road plot, which includes the area's old police station, was put up for sale after a developer committed to bid at least $1.138 billion - or $1,197 per sq ft (psf) per plot ratio (ppr).

Maybank Kim Eng analyst Derrick Heng noted in the report that consultants are predicting a top bid of $1,262 to $1,400 psf ppr.

The plot will have a maximum permissible gross floor area of 950,592 sq ft. At least 70 per cent, or 665,424 sq ft, must be used for offices, with up to 32,292 sq ft for retail.

Mr Heng said: "With a potential rebound in Singapore's office market, we see rents reaching $11 psf by the time the project is completed in 2022. This should make it profitable even at the top end of forecasts. And with Singapore's residential market showing early signs of a recovery, we see good reasons to incorporate a residential component."

The report said bullish bids for the Beach Road site "could enhance the asset values of office landlords, by reflecting high replacement costs for their buildings". They would also be a sign of developers' confidence in the sector, which could, in turn, lift property shares.

Mr Heng said office Reits would likely benefit most from the boost in optimism but "developer landlords with large office exposure should also be seen as beneficiaries".

Another sign of the office market's recovery came last week when CapitaLand Commercial Trust paid $2.09 billion to buy Asia Square Tower 2 from asset management firm BlackRock. The deal for the 46-floor office block with a net lettable area of 778,719 sq ft is this year's biggest office real estate transaction by sale price.

The sale, which excludes The Westin Singapore hotel on the premises, will yield $2,689 psf for the building, which is 10 years into its 99-year lease.

The record psf price for a 99-year leasehold commercial building is $3,125 psf for 71, Robinson Road in 2008, while the 999-year leasehold Straits Trading Building last year hit a fresh high at $3,250 psf.

Mr Heng added an update on collective sale deals in the pipeline. Apart from the 7,500 units added from sales concluded so far this year, the collective sale deals on the market now could offer another 6,000 units to developers' inventories.

The tender for the Beach Road site closes at noon tomorrow.

A version of this article appeared in the print edition of The Straits Times on September 27, 2017, with the headline 'Land market springing to life: Maybank Kim Eng'. Print Edition | Subscribe