Outlook for Singapore’s commercial property market upbeat
By Shaun Poh
/ Cushman & Wakefield |
Singapore’s commercial property investment market perked up at the start of the second quarter, at a time when the cumulative tally for the earlier quarter had shown a drop with a few strata deals. Office development Tampines Grande 7 and 9 transacted in early April at $395 million, and Realty Centre closed a few days later at $148 million. Realty Centre was the first commercial collective sales inked in the year, fuelling hopes that the commercial collective sales market is chugging along despite the muted sentiments in the overall economy.
Oxley Holdings has entered into a deal to sell Chevron House for $1.03 billion, testing the capital value threshold of commercial properties. Anson House, 139 Cecil Street and possibly Frasers Tower are next in line.
Oxley Holdings has entered into a deal to sell Chevron House for $1.03 billion (Pictures: Samuel Isaac Chua/EdgeProp Singapore)
Whatever the reasons for selling commercial properties, the market is in agreement that the momentum of commercial development sales will remain steady. The Draft Master Plan 2019’s recommendation to rejuvenate the CBD has certainly created some buzz in the commercial market.
CBD Incentive Scheme to benefit office developments
The CBD Incentive Scheme will offer an increase in gross plot ratio to encourage the conversion of existing office developments to hotel and residential uses. This could be beneficial for many office developments which face challenges when it comes to land use zoning.
As residential and hotel uses typically have a lower capital value, it does not make sense for land owners to downgrade to those development options without the increase in the plot ratio. If the CBD Incentive Scheme is approved, it will make commercial sense for developers to look at various development options.
The lure of hospitality continues, and property owners continue to weigh hotel conversions against higher development charges (DC) for hotel use. In the period just before DC for hotel conversions increased, Cheong Sim Lam acquired Ascott Raffles Place Singapore for $353.3 million. Waterloo Apartments was sold to a subsidiary of Fragrance Group through a collective sale of $131.1 million and the owners of Hotel 81 bought Golden Wall Centre for $276.2 million.
Cheong Sim Lam acquired Ascott Raffles Place Singapore for $353.3 million
Since the state planners raised the DC for hotel conversions, Oxley has put up its Mercure and Novotel Hotels back on the market and we may also see a transaction for Global Premium Hotels’ portfolio of 23 hotels. It will be interesting to watch the level of interest in hotel assets for the rest of the year.
CBD to see higher plot ratios, asset enhancements
If the Draft Master Plan goes through, plot ratios for numerous CBD land parcels will see significant increases. Private owners who have been sitting on historical land sites but have not been motivated to redevelop will welcome this move.
For example, the base plot ratios for land parcels in the heart of Raffles Place, and in the vicinity of Raffles Place MRT Station, have risen from 12.6 to 15.0. This provides an impetus for landlords of ageing assets in prime locations such as The Arcade and Clifford Centre to redevelop their properties. This could spur investment activity as landlords who were undecided on whether to divest their older assets for redevelopment now have more reason to do so.
Frasers Tower is a 38-storey premium Grade-A office development located at Cecil Street (Picture Credit: Albert Chua/EdgeProp Singapore)
There is also likely to be an increase in asset enhancement initiatives as landlords seize the opportunity to unlock any additional untapped gross floor area (GFA). It might be possible for landlords of assets which are currently undergoing asset enhancement initiatives to revise their plans in order to unlock the additional untapped GFA. As a result, there could be a delay in asset enhancement exercises as these landlords await the finalisation of the new Master Plan and apply for revised planning permissions.
Strong fundamentals persist in medium term
Singapore’s fundamentals remain strong. The city provides a safe haven for the weight of capital that is hunting for assets, albeit its limited stock. In the medium term over the next six to 12 months, commercial properties including office, hospitality assets and shophouses will continue to be sought after.
However, the window of opportunity may be narrowing. Should more commercial properties be converted to homes and hotels, the office supply in the CBD might be tightened further and drive the capital value of commercial properties even higher.
Office development Tampines Grande 7 and 9 transacted in early April at $395 million (Picture Credit: Cushman & Wakefield)
This situation may persist beyond 2020-2021 even when additional CBD office supply is released in the market. Investors will increasingly have to look more closely at the decentralised office market for opportunities similar to Tampines Grande 7 and 9.
Shaun Poh is executive director of Cushman & Wakefield’s Capital Markets team in Singapore where he leads a team of investment brokers and works closely with the regional capital markets team to support cross-border real estate investments.
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