The Urban Redevelopment Authority (URA) is expected to release more transitional office sites after the maiden tender for a plot on a 15-year lease

The Urban Redevelopment Authority (URA) is expected to release more transitional office sites after the maiden tender yesterday for a plot on a 15-year lease next to Newton MRT Station attracted a whopping 11 bids.

The highest offer of $37 million or $219 per square foot of potential gross floor area came from Scotts Spazio, a joint venture between Hwa Hong Corporation unit Singapore Warehouse and KOP Capital.

Hwa Hong and KOP are believed to be weighing their options, but some observers suggest they may have placed their bid - which was 19 per cent more than the next highest offer from a unit of Sin Soon Lee Realty - with a view to developing the site into offices for lease to a single tenant, possibly in the insurance business.

Some market watchers tip the potential tenant as Prudential, which has been looking for space to expand.

The 1.04-hectare site can be built up to 168,627 sq ft of gross floor area, yielding about 140,000 sq ft net lettable area of offices.

‘Based on the highest bid submitted, the breakeven cost for a new project on the site is likely to be around $500 psf per plot ratio, and this would provide the successful bidder with a decent yield of around 12 per cent for the 15-year leasehold site, based on a gross monthly rent of about $6.50 psf,’ said CB Richard Ellis executive director Li Hiaw Ho.

‘This sort of rental level is roughly half what a tenant would pay for similar size office space in the CBD.’

Interestingly, KOP Capital has a tie-up with a unit of Emirates Investment Group to develop a condo on the Hotel Asia site further down Scotts Road.

The other parties that bid in yesterday’s tender include Sim Lian Land; MV Land, controlled by Lim Kim Hong and Lim Huixing; Hersing Corporation; United Engineers; Sino Holdings; Newton Centre, owned by Ho Kiau Seng, Phua Seng Hua Paul and Lau Kau Chin; and Khai Wah Development, part of Ho Lee Group.

Wing Tai and Soilbuild Group placed the lowest bids, of $74 psf ppr and $61 psf ppr respectively.

Market watchers expect URA to release more transitional office sites soon, given the strong demand in yesterday’s tender.

URA extended the lease period for the Scotts Road plot from an initial 10 years to 15 years after market feedback that most investors wanted a longer lease period to recoup their outlay and cater to potential tenants’ requirements.

Transitional office sites are one of the government’s initiatives to provide short-term relief from the office space crunch. In addition, URA has stepped up mid and longer-term office supply by offering more 99-year leasehold plots that can be developed into offices in the CBD.

These include two commercial plots in Anson Road, as well as several sites with minimum stipulated office components - two ‘white’ sites at Marina View near One Shenton, the former Beach Road camp, and a ‘white’ site above Outram Park MRT Station.

The tender for a plot in Anson Road closed last month and the site was awarded to a Mapletree Investments unit at $1,021 psf per plot ratio. The Beach Road tender closed last month and is being evaluated under a dual-envelope system under which the concepts proposed by tenderers will have to be acceptable before their price envelopes are opened.

The tender for the second plot in Anson Road closes on Aug 28 and that for the first plot at Marina View closes on Sept 19. The tender for the plot nearby is slated to close on Nov 13.

Source : Business Times - 23 Aug 2007