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10-storey commercial building to replace Park Mall

The sleepy corner of Dhoby Ghaut that housed Park Mall is getting a new lease of life.

Singapore-listed developer SingHaiyi Group yesterday unveiled plans for a new 10-storey building, which is now under construction at 9 Penang Road, near Orchard Road.

The mixed-use project will have two wings comprising eight levels of office space, with a total of about 352,000 sq ft of net lettable area, and a 15,000 sq ft floor for retail.

There will be cycle paths around the building as well as bicycle parking facilities and shower rooms.

SingHaiyi yesterday said the project will cost about $800 million. The lease for the site has also been extended to 99 years.

The former Park Mall was the go-to place for shoppers looking for furniture after it changed its focus from fashion in 1995.

It was sold by Suntec Real Estate Investment Trust (Reit) in June 2015 for $411.8 million.

The trust still holds a 30 per cent stake in the building.

While office demand is facing challenging times, Orchard Road has its own sources of demand, and relatively stable and low vacancy rates.

The new building will be a breath of fresh air for Orchard Road as there has been no new supply in this sub-market for a period of time.

There might be some 'musical chairs' as tenants in the area move to quality.

Its location could be a plus or minus - it is not right in the middle of the action but it is well connected to the MRT.

While it was too early to project rental yields, office rents in Orchard Road are about $6.70 per sq ft a month.

SingHaiyi, being a Chinese company, could attract mainland Internet companies to move into the building.

Internet firms choose to relocate to Orchard as they want a campus-like atmosphere but have not reached a critical mass.

Mr Terence Ang, a corporate advisory partner who works in Dhoby Ghaut, said the mall would add retail and dining options to the area where Plaza Singapura is also sited. "Hopefully, it will have a nice restaurant or two where I can bring clients," he added.

Adapted from: The Straits Times, 26 January 2017


Strata industrial units continue to lose their lustre since 2012 peak

The shine is coming off industrial units.

Waning investment yields and demand from end-users have kept a lid on buying interest. The numbers say as much.

The number of strata transactions has been falling since the peak of 2012. Based on the caveats lodged, the figure dipped by a fifth (20.7 per cent) last year from the year before; the 849 such units sold in 2016 made for the fourth straight year of decline.

The proportion of new sales tanked amid a lack of new launches. New units sold made up just 16 per cent last year, down from 54 per cent in 2012.

Resale units were the majority last year - 84 per cent, up from 41 per cent in 2012.

Market watchers are expecting transactions this year to remain subdued, with only one potential industrial project launch in Woodlands following a lack of larger development sites - those meant for multiple-user strata developments - sold by the government in recent years.

There was a reduced number of new-sale projects in the market compared to the boom period pre-2014, and, coupled with industrial end-users' greater preference for longer-lease tenures, new sale strata-titled projects generally saw greater headwinds in sales performance.

Sentiment among manufacturers has been weak. Added to this, the punishing seller's stamp duty on speculators who offload the property within three years of purchase has invariably hurt buying interest.

That said, a modest uptick in demand for resale units can be expected, as price expectations between sellers and buyers rationalise. Falling prices may entice genuine end-users to come into the market this year.

Institutional investors on the look-out for higher investment yield over the longer term are also starting to look at industrial properties this year.

However, the lack of new industrial launches and higher cost of borrowing this year (on the back of rising interest rates) may dampen overall buying demand. For investors, their appetite remains curbed by the cooling measures on the industrial sector and borrowings limit under the total debt servicing ratio (TDSR).

The buffer may come when lower price levels draw buyers who have been waiting on the sidelines, especially end-users who are looking for a space in which to operate.

On that note, resales in new completions in 2017 may pick up. West Star at Tuas Bay Close, Proxima@Gambas, and Mega@Woodlands among projects that are expected to receive their temporary occupation permit this year.

Island-wide, multiple-user factory space faced elevated vacancy of 12.9 per cent as at end-September - going by JTC's third-quarter 2016 data. Their rents have fallen by 12 per cent from the peak of Q2 2014 - faster than the 8.3 per cent drop in prices over the same period.

Investors are thus getting a reality check on rental yields. Back in the heyday of strata industrial units between 2010 and 2012, rental yields could be 6 to 10 per cent, depending on location, lease tenure, industrial-use type and sizes.

Today, rental yields are at an average of 4 per cent based on transacted rents, brokers say. Higher yields of between 5 to 6 per cent are achievable in better-located industrial properties, as well as with smaller units and those on lower floors.

That said, the pressures of yield compression persist against the backdrop of a weakening leasing market.

Industrial units in Oxley BizHub, CT Hub and AZ @ Paya Lebar sold like hot cakes during their launch in 2011-2012; a majority of units in Oxley BizHub and CT Hub were priced palatably under S$1 million. Their rental yields now are in the range of 2.4 to 3.8 per cent, going by Square Foot Research estimates. Oxley BizHub 2 has a higher estimated rental yield of 4.6 per cent.

These projects, zoned as Business-1 (B1), were among industrial buildings found by The Business Times to be housing unauthorised users, drawn there by rents that are lower than in commercial spaces. BT reported on Wednesday that tenants of various trades that do not fall under the approved uses for industrial space have settled into units of these strata projects, which offer office-like designs and proximity to transport nodes, making the misuse of such industrial spaces more conspicuous.

Some brokers say that rents at 60-year leasehold project Oxley Bizhub start at S$1.80 per square foot (psf) a month - a far cry from the S$3 to S$4 psf pitched by agents during its launch. If strata owners sell out now, they may make a loss.

At freehold project AZ @ Paya Lebar, the smallest units of 1,098 sq ft crossed S$2,000 psf mark; its developer Ascendas Land has sold all the units since its launch for around S$1,100 psf on average, based on caveats lodged.

At that price, the units have to be rented out at close to S$4 psf to achieve a 4 per cent yield. But median rents there in the last six months have been S$2.35 psf a month, based on Square Foot Research estimates.

Meanwhile, sales and leasing activities in industrial projects launched after 2013 are moving only glacially.

Singapore-listed OKH Global's 30-year leasehold ramp-up projects, ACE@Buroh and Loyang Enterprise Building, started sales in 2014. It took until end-March last year - about two years on - for 85 per cent of the units at ACE @Buroh to be sold; over at Loyang Enterprise Building, 47 per cent - still under half - the units had been moved as at last December. Both are zoned Business-2 (B2), and may be used for heavy industries.

The 10-storey B2 industrial building, 12 Tai Seng Link, which OKH completed in 2015 and is retaining for rental, was still standing largely empty when The Business Times visited it.

Strata transactions and prices are expected to drop another 5 to 10 per cent this year amid a lack of demand, especially when the oil and gas sector has not recovered.

Another 8 to 10 per cent downside in rents is expected for strata industrial this year after last year's 8 to 9 per cent drop.

But the longer-term leasehold properties such as the 60-year leasehold or freehold properties near MRT stations are likely to hold their value better. Last year, topping the primary sales caveated for strata industrial was Win 5 in Yishun, a 30-year leasehold project developed by Soon Hock Tuas Development Pte Ltd. Some 26 caveats were recorded at an average S$239 psf. This was followed by 18 caveats lodged for E9 Premium at an average S$348 psf; 15 caveats for T99 were lodged at an average S$310 psf.

Topping the average selling price on a per square foot basis among new sales were MAPEX in Jalan Pemimpin, TAG A in Tagore Lane and M38 in Jalan Peminpin at S$1,479 psf, S$1,283 psf and S$716 psf respectively. MAPEX also topped the average psf pricing among resales at S$1,331 psf, followed by 100 Pasir Panjang at S$1,183 psf, and AZ @ Paya Lebar at S$1,164 psf.

Freehold project MAPEX was developed by a private vehicle of the Ng family that founded Pan-United Corporation Limited, and M38 - also freehold - by a private investment of UIC chief executive Lim Hock San and Yi Kai Development. These were completed around last year and had high vacancy rates when BT visited them.

Resale transactions last year were topped by Tradehub 21 in Boon Lay, which clocked 19 caveats at an average S$495 psf; North Link Building in Admiralty where 19 caveats were lodged at an average S$169 psf; and Midview City in Sin Ming, where 18 caveats were lodged with average pricing of S$491 psf.

Adapted from: The Business Times, 26 January 2017

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