German pension fund manager SEB has been given an option to buy SIA Building at Robinson Road for just over $525 million or about $1,780 psf

German pension fund manager SEB has been given an option to buy SIA Building at Robinson Road for just over $525 million or about $1,780 psf of net lettable area, sources say. The per square foot price is a new record in the current office cycle and about 50 per cent more than seller TSO Investment - a fully owned subsidiary of a property fund managed by CLSA Capital Partners - paid for the 35-storey office block 10 months ago.

Jones Lang LaSalle is understood to have brokered the latest deal.

SIA Building has a total net lettable area of about 295,000 sq ft and is on a site with a remaining lease of 86 years.

The building comprises 31 floors of office space, some retail space and about 180 parking lots. It was completed in 1997.

Based on the rental income the building is now said to be generating, the $525 million price works out to a net yield of 3 to 3.5 per cent, market watchers say. Of course, there is upside upon rental renewals or new leases being signed, given the shortage of office space.

The $1,780 psf tag surpasses the $1,599 psf that United Overseas Bank paid for the Singapore Exchange’s space at SGX Centre last month.

Of course, the latest achievement is still shy of the $2,200 psf record set in January 1996 when Straits Steamship Land, now Keppel Land, sold seven floors of what is now known as Prudential Tower in the China Square area to Prudential Assurance Company Singapore.

However, office market watchers expect the gap to be closed soon, in the face of tight office supply that has sent office rents and values soaring.

According to Colliers International, gross monthly average Grade A office rent in Raffles Place jumped 23.5 per cent from end-2006 to $10.63 per square foot in Q1 this year, after rising 66.5 per cent for the whole of last year.

And the firm expects a further increase of at least 30 per cent over the next three quarters. The Q1 figure of $10.63 psf exceeds the 1996 high of $9.77 psf by 8.8 per cent.

SIA Building is SEB’s first major property acquisition in Singapore. The group originates from Sweden but the pension fund money it manages comes mainly from Germany.

This is the second office building in Singapore that a CLSA fund has sold within a short period for a tidy profit. BT reported last week that a CLSA fund earlier this year sold HB Robinson for $119 million or $1,290 psf to a Credit Suisse fund. It paid $80 million or $869 psf for the property last year.

Citing market watchers, BT’s report said most of the office buildings that have changed hands in the past year or so are ‘in play’ as investors find it hard to resist the temptation to make a quick gain.

Source: The Business Times, 17 April 2007