Imbalance seen in CBD space supply, demand

The redevelopment and regeneration of the Central Business District (CBD) is well under way, but it may not be happening fast enough.
According to a report by DTZ Debenham Tie Leung, average annual take-up of office space has been 1.8 million square feet for the last 10 years. Yet, the property firm notes that potential supply for 2007 is estimated at 612,000 sq ft.
In 2008 and 2009, supply will dip below 500,000 sq ft and will only pick up in 2010 to 2.15 million sq ft.
And already, the repercussions are being felt.
In its Global Office Occupancy Costs Survey 2007, DTZ shows that rents in Singapore rose 65 per cent year on year, the highest increase across all 134 locations surveyed, to US$7,860 per workstation per year.
As a result, Singapore climbed 41 places on DTZ’s survey list to 55th spot globally, and was up six places to ninth position in the Asia-Pacific region.
There does appear to be an imbalance of supply and demand, and as DTZ executive director Ong Choon Fah says: ‘The government can programme development.’
For Mrs Ong, the pace of redevelopment in the CBD could have been faster but as she also points out: ‘Crystal ball-gazing is not easy.’
‘It’s a combination of planning and market forces,’ she added.
Perhaps one of the best examples of this paradox is One Raffles Quay (ORQ).
A consortium of Keppel Land, Cheung Kong Holdings and Hongkong Land bought the site in March 2001 for $462 million, or $290 per square foot per plot ratio (psf ppr), at a time when, as Mrs Ong remembers, the property market was ‘very bad’. Indeed, the site had previously been offered for sale in 1997 and there were no takers. The expected price of between $600 million and $800 million was also not achieved.
Mrs Ong says that the acquisition was seen as ‘contrarian’ at the time. But ORQ is now fully leased and achieving top rents, spurring redevelopment and a rash of acquisitions by foreign funds of buildings, most recently Temasek Tower.
Also contrarian was City Developments Ltd (CDL), which in 2002 bought the site for its hugely successful The Sail @ Marina Bay for $227.10 psf ppr - 22 per cent lower than the price paid for neighbouring ORQ.
Looking back, CDL group general manager Chia Ngiang Hong said: ‘CDL purchased the white site which is now being developed into The Sail at a time when no other developer was willing to venture into building a residential development at Marina Bay.’
CDL is now redeveloping One Shenton (the former Robina House) into a high-end condominium with a retail component, and has also expressed interest in the UIC Building next door, which is for sale at about $830 million or $1,150 psf ppr (inclusive of development charge and lease top-up).
Developers now appear to be making up for lost time, and demand for development sites is high.
‘Older buildings are often strategically located in prime areas that render them ideal for redevelopment. As such, although the older buildings purchased via en bloc acquisitions are not immediately available due to longer lead time required for planning process, their conversion may yield better returns,’ Mr Chia said.
The spate of current redevelopments, including the government land sales site at Collyer Quay and Overseas Union House, can be attributed to the ‘programming of development’ by the Urban Redevelopment Authority (URA).
Some, like the redevelopment of Natwest Centre into a condominium called The Clift by Far East Organization, was prompted by a URA initiative to bring more critical mass into an otherwise quiet downtown at night.
Plot ratio incentives are also important.
A spokesman for the URA said: ‘A number of existing office buildings in the CBD, in particular in the Shenton Way and Cecil Street areas, have not yet maximised their full development potential under the current Master Plan 2003.’
The pace of redevelopment has certainly picked up since 2003. Keppel Land is the latest to take advantage of the Master Plan and will soon announce plans for the redevelopment of Ocean Building.
‘There are merits in redeveloping Ocean Building and these include the opportunity to add about 100,000 sq ft of gross floor area which has not been utilised,’ a spokesman for Keppel Land said.
‘Furthermore, it will become increasingly challenging for the building, which is about 33 years old, to attract and retain top-quality tenants. By redeveloping Ocean Building we will be able to effectively maximise the potential of the site.’
Mrs Ong for one welcomes the government’s initiatives to address the issue of supply in the CBD, including the release of more development sites. She says that it is important to maintain the current ‘momentum of development’, not least because it allows the older parts of the CBD to regenerate.
She notes: ‘In the 1970s, when the government started releasing sites in Shenton Way, it stimulated the regeneration of the old Raffles Place.’
Source: The Business Times, 31 March 2007