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Business Times – 14 Nov 2007

Modest bidding for CBD office site as caution sinks in

Top offer of $779.42 psf ppr half of next- door site’s recent bid

By KALPANA RASHIWALA

(SINGAPORE) The new-found caution surrounding the Singapore office market is
now spilling over to the Central Business District.

Reflecting this, a site at Marina View diagonally behind One Shenton
yesterday attracted a top bid from Macquarie Global Property Advisors (MGPA)
of $779.42 psf per plot ratio – only about half of the group’s winning bid
in September for the site next door.

Knight Frank managing director Tan Tiong Cheng acknowledged that office
investors have turned cautious. ‘The outcome of the sub-prime episode may
have an impact on demand for office space in Singapore, while the government
has expressly stated recently it will boost supply of office land in the
next few years to alleviate the current shortage,’ he said.

Another reason for the lower bid for the latest site – Marina View Land
Parcel B – is that it has a minimum hotel component of at least 25 per cent
of the site’s maximum gross floor area, property consultants said. ‘Hotel
land values are a lot lower than office values,’ said Mr Tan.

‘The latest tender outcome is also a knee jerk-reaction to what has been
happening lately in the US – the sub-prime crisis being worse than initially
thought and big banks being affected. Banks are prime users of office
space.’

The only other bid at yesterday’s tender came from units of CapitaLand, at
$898 million or $734.52 psf ppr.

BT understands that CapitaLand was to team up with Thai tycoon Charoen
Sirivadhanabhakdi’s privately held vehicle Pacific Coast Assets, had its bid
been successful.

By most counts, the top bid at yesterday’s tender by MGPA unit MGP Kimi of
$952.89 million or $779 psf ppr was lower than had been predicted.

CB Richard Ellis executive director Li Hiaw Ho had expected Marina View Land
Parcel B to fetch about $1,200 to $1,300 psf ppr, lower than the $1,409 psf
ppr that an MGPA unit paid in September for the next door Marina View Land
Parcel A, considering the minimum hotel component for the latest plot.
‘There is a chance that the state’s reserve price may not have been met and
that the latest site may not be awarded,’ Mr Li suggests.

However, other property consultants argued that the plot will be awarded.

Mr Tan said his firm, Knight Frank, predicted in late July projected that
the site would attract bids of $1.1 billion to $1.3 billion, or $900-1,060
psf ppr. ‘Taking the mid point of $1.2 billion, the top bid was about 20 per
cent lower than our projection. To me that is within range, and I would
expect the site to be awarded,’ Mr Tan said.

‘The price is still substantially higher than other sites sold in the Marina
Bay area in recent years.’

Jones Lang LaSalle’s Asia Capital Markets head Stuart Crow said: ‘The price
seems fair going by recent land bids and taking into account the hotel
component for this site.’

MGPA’s top bid at yesterday’s tender also ‘reinforces the foreign investor
interest in the Singapore property market fundamentals’, he added. ‘In my
view, the site will be awarded.’

Mr Crow estimates that MGPA’s bid price for Parcel B yesterday reflects a
break-even cost of about $2,200 to $2,300 psf for the office component of a
potential development on the site. As for the hotel component, market
watchers estimate the break-even cost could be about $700,000 to $800,000
per room.

Marina View Land Parcel B has a site area of about 0.9 hectare and can be
developed into a maximum gross floor area (GFA) of about 1.22 million sq ft,
of which at least 60 per cent must be for offices and at least another 25
per cent for hotel use.