The changing face of Singapore office space

The changing face of Singapore office space

CALVIN YEO looks at how the development of New Downtown at Marina Bay will shape new offerings in the current CBD

WITH demand for office space in Singapore outpacing supply in the last three and a half years on the back of healthy economic growth, rents have been surging, with prime space seeing a rise of over 200 per cent since the lows of 2004.

New look: The New Downtown (above) will not only bring a brand new skyline to the existing CBD (next), but also up the standards of design and facilities
Monthly gross rents of Grade A space in Raffles Place grew by a phenomenal 222 per cent from an average $3.95 per sq ft at the trough in Q1 2004 to a record $12.69 psf as at end Q2 this year. Occupancy of office space island-wide hit 92 per cent as of Q2 2007 - the highest level since Q3 1996, with most prime office buildings enjoying near full occupancy.

Against this backdrop of soaring rents and a dearth of supply, office tenants are eagerly awaiting new office stock coming to the market. This will largely comprise prime office developments in the New Downtown at Marina Bay.

Assuming the two new white sites at Marina View currently on tender are developed by 2011, the New Downtown would yield some 5.4 million sq ft of prime office space. This is equivalent to 47 per cent of the current Grade A stock in Raffles Place and Shenton Way/Tanjong Pagar.

The New Downtown at Marina Bay will not only give the Central Business District (CBD) a new skyline, but could also spur higher building standards in the existing CBD. When landlords of existing Grade A buildings in Raffles Place and Shenton Way/Tanjong Pagar redevelop or retrofit their properties in the coming years, they will have to raise their specifications to match those of offices in the New Downtown to stay competitive.

Among other things, this new office space will offer specifications and services catering to the evolving needs of multinationals and match the top standards found in other regional markets such as Hong Kong and Shanghai. Examples of such specifications include:
Larger floor plates in excess of 20,000 sq ft, against the current average of 13,000 sq ft
Enhanced efficiencies with column-free regular floor plates
Floor-to-ceiling heights in excess of 2.7m
More robust technical infrastructure, such as dual-feed power supply to overcome power failure, and dedicated emergency power feed.
New-generation prime office stock in the existing CBD can also be expected to offer services such as regular tenant feedback meetings.

An increasing number of companies are also looking to raise the quality of the work space, as an attractive office environment becomes key in recruiting and retaining the best talents, comprising largely the Generation X and Y workforce who drive change. Such an enviroment will also boost overall productivity. As such, we can expect future Grade A office supply in the existing CBD to feature the following:
Maximum work space adjacent to natural light and views
Good ventilation
Minimal noise intrusion from building mechanical services
Use of non-health hazardous building materials
Dedicated higher capacity IT fibre connectivity
Uninterrupted power supply.

With companies becoming more environmentally aware, tenants would also prefer to locate in an environmentally-friendly office building. This would include features such as efficient energy and water consumption and conservation systems, as well as measures on indoor pollutants against the corresponding green building maintenance and operational guidelines.

Hence, many redeveloped or retrofitted Grade A office buildings in the CBD can be expected to seek a Green Mark certification from the Building and Construction Authority.

In fact, the gentrification of the current CBD had already begun with the redevelopment of buildings such as Crosby House, Ocean Building and Overseas Union House. By 2011, some 3.5 million sq ft of redeveloped Grade A office space in the current CBD is expected to be completed.

Landlords of other older buildings in Raffles Place could choose to retrofit instead. For example, the landlords of 6 Battery Road, Singapore Land Tower and UOB Plaza II have opted for retrofitting. This includes re-cladding the building façade, creating space for cafes, installing multi-media screens, and upgrading lifts, lobbies, toilets and carparks. With this, they can command top rents and occupancy rates.

Second-tier buildings, such as those built on smaller footprints, could find a niche catering to tenants who do not require the most prime office locations or large floor plates. The answer is the boutique office, typically a high quality office building with a smaller footprint. These developments have small floor plates and target smaller space users such as fund managers, private banks, re-insurance firms, professional services firms and regional offices. They offer tenants the prestige and exclusivity of being a full-floor tenant.

The live, work and play concept is taking root here so tenants would appreciate features such as shower and fitness facilities and common break-out areas with wireless computer access and flexible after-office hours air-conditioning arrangements.

In this context, the clustering of eateries, convenience stores, laundries, mobile devices support centres, and covered walkways could just make buildings along a street collectively more attractive.

Some might say the current CBD lacks character. But with the New Downtown as catalyst, the older part of the business district could see an innovative repositioning that would help Singapore’s office market gain depth and breadth, catering to a broad range of tenants, from MNCs to boutique operations.

The writer is director of commercial leasing, Colliers International
Source : Business Times - 27 sept 2007

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Can the credit crunch dent Singapore prime office market?

Can the credit crunch dent Singapore prime office market?

MEGAN WALTERS and ALVIN TEO examine the impact of sub-prime woes on the real estate needs of financial institutions here

Singapore’s fast growing financial sector has been a major user of prime office space and helped fuel the strong growth in rental and capital values of late. But the recent credit crisis in global markets stemming from defaulting US sub-prime loans has put a dampener on the financial sector.

Volatile environment: With 70% of the top 25 buildings achieving full occupancy consistently, many businesses have resorted to reconfiguring their existing premises to contain more headcount due to shortage of spaces for their expansions
At the start of the sub-prime fallout in July, Asian banks were thought to be relatively insulated from the problems. But by the end of August, banks, including DBS and the Bank of China, appeared to have greater exposure to US mortgage debt than previously thought.

DBS admitted to $2.4 billion exposure to collateralised debt obligations (CDOs), double what the market had expected. The Bank of China saw its share price fall 8.1 per cent when it became apparent that it held $9.5 billion or 3.8 per cent total securities investments in CDOs.

What will be the effect on the Singapore office market from this shake-up in the banking system? Cushman and Wakefield examine the issue by looking at the performance of the top 25 office buildings here.

Financial services are a key part of the Singapore economy, making up 20 per cent of GDP. More importantly, financial services’ annual GDP growth was 17 per cent for Q2 07, more than double the manufacturing GDP growth rate of 8.3 per cent on the same basis.

Manufacturing is the largest single component of GDP accounting for 45 per cent GDP, but the growth rates in financial services means banking and related services is catching up fast.

The Singapore Department of Statistics found that for Q2 07, the financial services industry did extremely well with turnover growing at an astounding 39.7 per cent on an annualised basis.

A slowdown in the American economy is now expected - with higher borrowing costs, and falling house prices affecting US consumers. With the health of the financial sector dependent on the health of the main economy, the question is: to what extent is the slower growth of the US going to affect the financial sector in Singapore?

This will be two ways: first, the health of the general economy in Asia and, more specifically Singapore, and the second, where the interrelated nature of the financial markets means a downturn in the US financial sector will squeeze the financial sector here.

Of the two issues, the first - the general economic outlook for the region - is still very positive, whilst the second - the financial markets themselves - are still uncertain.

Following a review with 480 companies in seven Asian cities, including Singapore, IMA Asia, a consultancy firm, has revised its economic forecast for Asia (excluding Japan) upwards from 7.4 to 7.9 per cent for 2007 and 7.1 to 7.6 per cent for 2008, despite a substantial cut in the US GDP forecast.

The effect of the risk in the financial markets is much harder to judge - with no one really certain where the risk currently lies. This will be an issue for banks, uncertain whether to expand their regional operations to meet the projected regional growth, against the backdrop of uncertainty in the financial markets. What will be the effect of difficulties in the financial markets on Singapore prime office markets? As at end-August 2007, Singapore prime office rents are $12.21 psf/month with the Top 25 buildings at $12.28 psf/month.

It is expected that any immediate effect on the local prime office market will come from banks as tenants. Most banks are not the owners or landlords of the top 25 office buildings. The majority of the buildings are owned by local property developers or, most recently, funds.

C&W research has found that banks and financial institutions occupy nearly 40 per cent of floor space or nearly 4.8m sq ft in the top 25 prime office buildings, a long way ahead of the next largest category of occupants - professional services firms such as auditors and lawyers.

Given the current volatility of the market triggered by the sub-prime lending in US and the most recent fear of a liquidity crunch, would this affect this group of occupiers in their aggressive expansion plans as we have witnessed in the past 18 months?

A squeeze on bank profits from the credit crunch may result in a reduction in headcount, as already seen in Lehman and HSBC in the US, which will lead to some secondary supply back on to the market. It is possible that this may affect the developers in the real estate markets, but to date we have no evidence of any problems for developers occurring as a result of the current credit crunch.

We have consistently witnessed space being taken up due to expansions and new set-ups. Although at a slightly slower pace as compared to the first half of the year, it is largely due to a lack of supply of good class office buildings.

Vacancy rates are consistently hovering at only one per cent for this group of buildings. Many large financial institutions are also aggressively pre-committing spaces even before the building is constructed and this was best demonstrated in Marina Bay Financial Centre where the entire Tower 1 of about 600,000 sf was pre-leased three years ahead of the building completion! They include tenants like Standard Chartered Bank and French investment bank Natixis.

With 70 per cent of the Top 25 buildings achieving full occupancy consistently, many businesses have also resorted to reconfiguring their existing premises to contain more headcount due to shortage of spaces for their expansions.

The fundamentals of the Asia-Pacific economies remain strong with GDP rates remaining robust. Singapore’s own GDP figures have just been revised upwards by MTI from 5-7 per cent to an upbeat 7-8 per cent range. It is possible that the credit crunch will have little effect as fundamentals remain strong, and Singapore remains a competitive place to do business. Any reduction in headcount by banks and freeing up of supply will more than be met by demand from other sectors.

However, sentiment plays a strong part in stock markets particularly in Asia. In the longer term, the current market wobble may lead to a correction in prices which will affect firms’ expansion plans, and the banks’ willingness to lend.

Megan Walters is with Cushman & Wakefield (Asia-Pacific); Alvin Teo is with Cushman & Wakefield (Singapore)

Source : Business Times - 27 sept 2007

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Singapore Industrial space gets snapped up

Singapore Industrial space gets snapped up

Vacancy rates are the lowest in eight years, as Reit players push up demand for warehouse and factory space, say DOMINIC PETERS and YONG YUNG SHIN

IN TANDEM with the growth in residential and office space, average rents for the less glamorous but nonetheless expanding industrial space sector increased by 7.7 per cent in the second quarter this year.

Full house: The Comtech (above) and Alexandra Technopark are enjoying near 100 per cent occupancy. Comtech has seen a rapid dwindling in its vacancy rate even as asking rentals surge to $4 psf for upper floors.
This is all the more significant considering that the industrial space sector is still trying to clear the supply glut that has been stagnating in the market. In spite of this, vacancy rates are at the lowest in the past eight years. Besides a promising 8.3 per cent growth in the manufacturing industry, higher demand for business parks also accounts for the expansion in this property sector. Industrial space is made up of warehouse and factory space. The latter itself contains three sub-categories - single-user factories, multi-user factories and business parks.

In the first half of this year, factory and warehouse space saw an increase of 3.7 million and 1.6 million square feet in stock respectively. This has brought the total stock to 299 million sq ft for the former category and 65.7 million sq ft for the latter.

As at end Q2 this year, supply in the pipeline will channel a further 45.2 million sq ft into the market over the next five years.

Additionally, nine industrial sites have been released for the second half of 2007 under the government’s industrial land sales programme, which will provide an additional 3.74 million sq ft of space once completed.

On the demand side, the past half year recorded a healthy take-up of about 330.5 million sq ft of industrial space, contributed by 271.9 million sq ft of factory space and 58.6 million sq ft of warehouse space respectively. This resulted in a decline of vacancy rates to 9.1 per cent for factories and 10.9 per cent for warehouses.

The biggest demand in the industrial space market came from aggressive acquisitions by major Reits players like Mapletree, A-Reit, Cambridge and the recently listed MacarthurCook Industrial Reit.

In the first half of this year, more than 15 acquisitions have taken place, bringing the total value of transactions to almost $900 million, upping last year’s tally during the same period by 1.6 per cent.

Steadily increasing rents no doubt account for the active acquisition rates. According to URA statistics, rental and price indices for warehouses increased by 20.4 and 13.9 per cent in the first half of 2007 compared to the same period last year, while those of factories rose by 14.2 and 18.1 per cent year-on-year respectively. (See Table 1)

During the first half of the year, average monthly rents for factory space increased by 3.8 per cent quarter-on-quarter, standing at $1.60-$1.80 psf for ground floor units and $1.20- $1.40 psf for upper floor units. Average capital values for freehold factory space appreciated by about 5 per cent to $366 psf and $298 psf for ground floor units and upper floor units respectively (See Table 2). UE Print Media Hub, located at Tai Seng Drive, a project by United Engineers, catering mainly for the print and media industry, saw occupancy rates hit 88 per cent in one month.

High-tech space posted the largest rental growth of almost 12 per cent quarter-on-quarter, benefiting from the spillover of high demand for office space. With rents substantially lower than that of office space, yet providing similar functionality, it is no wonder that developments like The Comtech and Alexandra Technopark are enjoying near 100 per cent occupancy.

The Comtech, especially, has seen a rapid dwindling in its vacancy rate even as asking rentals surge to $4 psf for upper floors. Currently, average rents for high-tech space stand at $2.80 psf, up from $2.10 psf in the first quarter of the year. With a limited stock of high-quality warehouse space in the island, demand is fast catching up with supply, with an occupancy rate of 90 per cent. This is especially so in the east where a high concentration of logistics companies are located due to its close proximity to Changi Airport.

In addition to building specifications such as high floor loads, large floor plates and good cargo lift facilities, location remains important, with developments located near major transportation nodes seeing higher take-up rates than those in the outskirts. Warehouse space is now asking an average rental of $1.45 psf per month with higher floors asking $1.15 psf, a rise of 11.5 per cent quarter-on-quarter. Average capital values for freehold warehouses/factories are also on the uptrend, coming in at $450 psf for ground floor units and $352 psf for higher floor units.

In light of the growing manufacturing sector, strong demand for industrial space will continue to support rents and capital values, despite a substantial amount of new stock entering the market during the second half of the year. Rents of factories and warehouses are likely to rise another 10 per cent by the end of the year. Also, as industrial Reits continue to expand their portfolio, the sector may well see an overhaul for much of the existing stock, especially older sites that are centrally located.

Dominic Peters is director, industrial business space, Savills Singapore; Yong Yung Shin is analyst, research & consultancy, Savills Singapore
Source : Business Times - 27 sept 2007

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Bright outlook for S-Reit Singapore market

Bright outlook for S-Reit Singapore market

With more overseas players seeking to list here and strong backing from the government to strengthen governance and the operation structure of the market, Singapore is fast developing into a regional Reit hub, writes JEREMY LAKE
SINGAPORE has established itself as one of the most developed markets in Asia for real estate investment trusts (Reits), supported by new listings and active acquisitions by existing Reits.

Reits have been the bright spot in the Singapore capital market and a major driver in the growth of market capitalisation on the Singapore Exchange (SGX). Currently, there are 17 Singapore Reits (S-Reits) listed on the SGX with a total market capitalisation of more than $25 billion as at end-August.

S-Reits have come a long way since the first retail Reit, CapitaMall Trust (CMT), was listed in 2002. The subsequent raising of the gearing cap from 25 per cent to 35 per cent contributed to the burgeoning market.

The investment trust framework allows an attractive level of tax-efficiency. S-Reits are granted tax transparency status, waiver of stamp duty and exemption from capital gains tax. Individual investors are given tax exemptions on Reit payouts. For these reasons, Reits have spurred considerable interest among investors and are now widely accepted as a high-quality investment option.

S-Reits themselves have been growing through acquistions. A total of $6.14 billion worth of properties was acquired by S-Reits in 2006, representing 20 per cent of the year’s total investment sales. This was also 39 per cent higher than the $4.41 billion of total assets acquired by S-Reits in 2005. So far this year, S-Reits have acquired properties of more than $3.7 billion. (See Table 1)
S-Reits are granted tax transparency status, waiver of stamp duty and exemption from capital gains tax. Individual investors are given tax exemptions on Reit payouts. For these reasons, Reits have spurred considerable interest among investors and are now widely accepted as a high-quality investment option.

Commercial Reits contributed the bulk of investment sales made by S-Reits in 2006 by acquiring a total of $3.84 billion worth of assets or 63 per cent of the total acquisition costs ($6.14 billion). The most significant transaction made by commercial Reits last year was the joint acquisition of Raffles City by CapitaCommercial Trust and CapitaMall Trust for a total of $2.17 billion, representing the highest price paid for any investment transaction in 2006.

So far this year, commercial Reits continue to account for the largest proportion of investment sales made by S-Reits, contributing $2.16 billion in transacted value or 58 per cent of the $3.71 billion in total investment sales. It was announced recently that both K-Reit and Suntec Reit have each acquired a one-third stake in One Raffles Quay for $1.88 billion. In addition, CapitaLand divested its interest in Wilkie Edge, a commercial-cum-serviced residence development, to CapitaCommerical Trust for $182.7 million.

The potential for further growth in the S-Reit market is substantial. The development of the S-Reit sector is largely supported by the proactive initiatives of the Monetary Authority of Singapore (MAS) to enhance their competitiveness in the region. In a move aimed at making Singapore a major Reit hub, the MAS released a consultation paper on proposed amendments to the Reit regulations in March. Key proposals include improving disclosure on short-term yield enhancing arrangements and their impact, allowing Reits to pay dividends in excess of current income, removing the aggregation rule for transactions with the same interested party and prohibiting discounts to institutional investors during IPOs.

An increasing variety of asset classes is expected to be listed as Reit vehicles in the medium term, beyond office buildings, shopping malls and industrial properties. Following the launch of the first healthcare S-Reit, First Reit, Lippo Group announced its plans to list two more S-Reits in the near term, 12 of which are shopping malls located in Jarkata with a total lettable area of 500,000 sq ft. The initial portfolio of the group’s third Reit will comprise commercial properties outside Indonesia, such as office buildings in Singapore, China and Hong Kong, worth about $2 billion in total.

JTC, the largest industrial developer in Singapore, announced its plan to list an industrial S-Reit in the near term. Its initial portfolio, estimated at $1.4 billion to $1.6 billion, will include flatted factories, ramp-up and stack-up factories, three multi-tenanted business park buildings and a warehouse.

Pramerica Asia was reported to be looking to divest its retail property portfolio via a Reit. Shopping malls to be injected into its $1-billion initial portfolio include Century Square, Hougang Plaza, Tiong Bahru Plaza and White Sands. Mapletree Investments was also reported to be planning to launch a commercial trust with VivoCity as the anchor asset, valued at an estimated $1.6 billion to $2 billion. Other properties likely to be included in this Reit are St James Power Station, HarbourFront Centre, a 60 per cent stake in HarbourFront Towers One & Two, a 30 per cent stake in Keppel Bay Tower, PSA Building and PSA Vista. The total value of the entire portfolio, including VivoCity, is estimated to be $3 billion.

While the Singapore government continues to strengthen governance and the operation structure of S-Reits, it is also striving to turn Singapore into a regional Reit hub, which will give Reits direct and ready access to capital.

More incentives are being provided for local and foreign companies to establish cross-border Reits, to hold overseas properties on other bourses as a strategy to expand their portfolios. Geographically, more than $20 billion or 81 per cent of the total asset portfolio held by S-Reits are local properties and the remaining 19 per cent or $4.77 billion worth of portfolio are overseas assets. (See Table 2)

The outlook for the S-Reit market remains positive as more Reit issuers divest their overseas assets into Reits here. More sophisticated Reit products will be developed over time. An Indian-based developer, Embassy Group, was also reported to be looking at launching a Reit in Singapore with a portfolio comprising some of the group’s business parks in India.

Indonesian property developer, Gapura Prima Group, will be teaming up with Malaysian developer (Amanah Raya Bhd) to launch a Reit on the SGX in the near term. Its initial portfolio will comprise five malls in Indonesia and another two in Malaysia worth $400 million in total.

Tokyo-based Asia Pacific Land Group plans to list a Reit in Singapore, with an initial portfolio comprising some of its retail and office properties in Japan worth $2.3 billion in total. Another Tokyo-based real estate fund manager, Re-plus, plans to launch an S-Reit in early 2008, with a portfolio comprising two China office buildings worth at least US$400 million.

Saudi Arabia-based property developer, Tanmiyat Investment Group, was reported to be looking to launch an S-Reit with an initial portfolio of developments in Saudi Arabia, the United Arab of Emirates, Turkey, Jordan and Sudan, worth a total of $13.6 billion.

As Reit portfolios become more diversified, more so than in the mature US and Australian Reit markets, Reit managers in Singapore are challenged to find ways to increase yields of the various asset types to make it more attractive for investors.

Certainly, Reits have added a dimension to the real estate investment and capital markets that appeals to both investors and property companies. The expected growth in Reits would have a positive impact on the broader market as it adds depth to the market and gives investors here wider investment choices.

The writer is executive director, investment properties, CB Richard Ellis
Source : Business Times - 27 sept 2007

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Mindy Yong
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Frasers Centrepoint Trust - Singapore

Frasers Centrepoint Trust - Singapore
FRASERS Centrepoint Trust (FCT) is a leading developer-sponsored retail real estate investment trust (Reit) focused on growing shareholder value for its unitholders through growing its investments in retail malls and active asset management. The sponsor of FCT is Frasers Centrepoint Limited, a leading Singapore-based property company and the property arm of Fraser & Neave, Limited.

FCT’s primary focus is to be a leading retail mall owner and manager, and it looks to deliver sustainable distribution per unit (DPU) growth to its unitholders. Over the past 12 months, FCT has grown its DPU through four strategic growth thrusts: building up of pipeline assets for future injection into the Reit; growing through increasing its rental reversions; growth through asset enhancement initiatives, and growth through overseas expansion. There is certainty of growth as FCT gains further traction in these strategic growth thrusts over the next 24 months.

FCT’s initial portfolio consists of three well-established quality suburban malls: Causeway Point, Northpoint and Anchorpoint, located in densely populated and growing residential areas with excellent connectivity to MRT and public transport. These malls enjoy high occupancy rates and dominant positions in their respective trading areas.

In the past four quarters, FCT has grown its acquisition pipeline to four identified assets: Northpoint 2, YewTee Point, a greenfield development at Bedok Town Centre, and The Centrepoint, providing a high degree of growth certainty for investors. These identified assets are set to double FCT’s net lettable area from 638,786 sq ft to more than 1.2 million sq ft upon injection.
Anchorpoint’s asset enhancement is the first in a series of three mall asset enhancement initiatives. At a cost of more than $12 million, the asset enhancement initiative to reposition Anchorpoint with a village-mall concept commenced in May 2007 and is on schedule for completion at the end of November 2007. Visitors will enjoy a new shopping and F&B experience at the new Anchorpoint. The repositioned mall will have a strong F&B offering with a wider range of retail concepts in cozy village mall setting.

Further, Anchorpoint will feature a unique cluster of factory outlet concepts currently not found in any other Singapore mall with initial signings that include Charles & Keith, FOS, G2000 and Club Marc.

FCT seeded a Malaysian growth platform in May 2007 through a strategic investment in Hektar Real Estate Investment Trust (Hektar), Malaysia’s only pure retail Reit. The investment of a 27 per cent stake in Hektar provides FCT with a yield-accretive investment in an underlying portfolio of prominent and high quality suburban regional malls in Malaysia - namely Subang Parade in Selangor and Mahkota Parade in Melaka. These retail malls have a total net lettable area of about 944,500 sq ft, house more than 230 major international and domestic retailers, and enjoy high transient traffic.

In the span of 12 months since going public in July 2006, FCT’s investment portfolio net lettable area, which includes pipeline assets under development, has more than tripled to 2.2 million sq ft and its market capitalisation almost doubled to $1.1 billion under the management of Frasers Centrepoint Asset Management Ltd, the real estate and fund management division of Frasers Centrepoint Limited.

FCT won the ‘Most Transparent Company Award (New Issues category)’ at the 7th Investors Choice Awards organised by the Securities Investors Association of Singapore (SIAS).
July 2006 - Frasers Centrepoint Trust (FCT) listed on the SGX with a portfolio of three quality suburban malls: Causeway Point, Northpoint and Anchorpoint with net lettable area (NLA) of 638,486 sq ft.
August 2006 - Northpoint2 added to FCT’s acquisition pipeline. Northpoint2 is located adjacent to Northpoint and will be fully integrated with the main building.
November 2006 - A greenfield development at Bedok Town Centre was added to FCT’s acquisition pipeline. To be developed as a lifestyle mall, located in the largest HDB township after the three regional centres: Jurong West, Woodlands and Tampines.
January 2007 - Acquisition pipeline increased to four identified assets with the addition of YewTee Point. FCT’s Singapore portfolio NLA exceeds 1.2 million sq ft with the addition of pipeline assets.
March 2007 - Assigned a first-time corporate ‘A3′ rating by Moody’s Investors Services, providing FCT with greater flexibility in executing future strategies and programmes.
May 2007 - FCT acquired a 27 per cent stake in Hektar Reit, giving FCT interest in two quality suburban malls in Malaysia and setting the platform for FCT’s overseas growth expansion. This increased FCT’s investment portfolio NLA, which includes pipeline assets under development, by 74 per cent to more than 2.2 million sq ft.
May 2007 - Anchorpoint asset enhancement commenced as the first in a series of three mall asset enhancement initiatives.
Source : Business Times - 27 sept 2007

Singapore Property - Buy , Sell , Rent , Invest

Mindy Yong
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Macquarie MEAG Prime Reit - Singapore

Macquarie MEAG Prime Reit - Singapore

MACQUARIE MEAG Prime Reit (MMP REIT) is a Singapore-based real estate investment trust (Reit) investing primarily in real estate used for retail and office purposes, both in Singapore and overseas.
It is the only S-Reit to own two landmark properties on Singapore’s prime shopping street Orchard Road with a 74.23 per cent strata title interest in Wisma Atria and a 27.23 per cent interest in Ngee Ann City.

Since listing in September 2005, MMP REIT has consistently outperformed IPO projections. Total absolute returns for unitholders who have held MMP REIT units since its listing stand at 35 per cent.

In May, the Reit acquired seven quality properties located in the prime areas of Tokyo, Japan for $182.5 million.

In August, MMP REIT completed the acquisition of a 100 per cent interest in a premier retail property in Chengdu, China for $70 million.

These recent acquisitions mark the first stage in delivering on its regional strategy to diversify income and the Reit’s geographical footprint.

New acquisitions will be sourced through its network which includes existing partners, agents and Macquarie Bank, MMP REIT’s financial sponsor. These acquisitions could be secured through direct and indirect acquisitions, joint ventures, co-investment with Macquarie Bank-linked funds and development. MMP REIT is managed by Macquarie Pacific Star Prime REIT Management Limited, a joint venture between Macquarie Bank Limited, MEAG MUNICH ERGO AssetManagement GmbH and Investmore Enterprises Ltd.

Source : Business Times - 27 sept 2007

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Mindy Yong
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Mapletree Logistics Trust - Singapore

Mapletree Logistics Trust - Singapore

OVERVIEW

MAPLETREE Logistics Trust (MapletreeLog) is a pan-Asia logistics Reit which invests in a diversified portfolio of income-producing real estate-related assets. It aims to harness the growth of the supply chain and logistics business in Asia.

Mapletree Logistics Trust Management is the manager of MapletreeLog. It aims to deliver stable total returns to MapletreeLog’s unitholders through its ‘Yield plus Growth’ strategy by undertaking:
Yield-accretive acquisitions of good-quality logistics properties in Asia
Positive asset enhancement measures to improve the organic returns from MapletreeLog’s property portfolio
Optimisation of capital structure and effective risk management

The MapletreeLog portfolio has grown by more than four times since it was listed to 61 completed properties in China, Singapore, Hong Kong and Malaysia with a book value of more than $2.2 billion. When the trust was listed in July 2005, we had 15 properties in Singapore with a book value of $422 million.

This progress brings us closer to our goal of achieving a portfolio size of $5 billion for MapletreeLog by 2010.

We are confident of meeting our distribution per unit (DPU) forecast for FY07. In fact, by 1H 07 we achieved a distribution per unit (DPU) of 3.07 cents, which is more than half of our FY07 forecast of 5.69 cents.

We are exploring new markets in Vietnam, South Korea, Thailand, India and Taiwan. By diversifying, our unitholders enjoy more stable distributions as income streams are not significantly affected by the impact of fluctuations in single markets.

Our future looks optimistic. Asian economic growth is expected to remain strong, which bodes well for the logistics and logistics real estate sectors.

With the outsourcing trend gaining momentum worldwide, there is an increasing demand for the supply chain services provided by third party logistics (3PL) players. To support the growing volume of supply chain activities in Asia, more good quality logistics facilities are needed.

By having a pan-Asia portfolio of quality, high-specification logistics real estate which are either located close to major transportation hubs, ports or airports or in established industrial and distribution hubs, MapletreeLog aims to be a strategic real estate solution provider to these 3PLs as they expand in Asia.

Source : Business Times - 27 sept 2007

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Mindy Yong
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The price of Singapore luxury

The price of Singapore luxury

Flush with cash, the high-end residential market is flourishing. KU SWEE YONG and JANE KWA look at what $5 million gets you

STRONG corporate profits and a global commodities boom in 2006 helped grow fortunes and sparked a surge in demand for trophy homes.

Riding high: Hayden Properties’ latest development at 37 Scotts Road features a glass car elevator so owners can park and show off their rides from their living room –
A survey by Cap Gemini and Merrill Lynch shows the number of high net worth individuals (HNWI) worldwide increased 8.3 per cent in 2006 to 9.5 million, with Singapore reported to have the fastest-growing number - up 21.2 per cent to 67,000. With this rising affluence, it is not surprising that high-end homes are being snapped up as soon as they go on the market, as they are just another example of luxury goods in hot demand.

Prices of high-end apartments continue to rise steadily, with new launches commanding increasingly higher rates in the prime districts of 9, 10 and 11. The average price of high-end residential property rose 9.1 per cent to $1,960 per sq ft from the last quarter, while the average price for super-luxury residential homes was even higher at $2,990 psf. The number of homes costing more than $5 million increased almost 54 per cent last year to 650. Foreign purchases at the top end of the market are also increasing.

‘Singapore is increasingly acknowledged as a safe haven for investments, backed by a strong Singapore dollar and an attractive tax regime,’ says Galen Tan, a managing director of EFG Private Bank. ‘An increasing number of high net worth clients have included Singapore as a part of their multi-generation wealth succession planning and are attracted to the conducive environment for retirement.’

Foreign purchases stand at 60 per cent of transactions above $5 million, compared with 39 per cent in 2006 and 14 per cent in 2005 ( See Table 1). Looking at the top 10 transactions over the last five or six years in terms of price, the past two years have seen significant increases - from about $2,050 psf in 2000 to $3,090 in 2006 and $4,078 in first-half 2007. The number of units sold above $4,000 psf in July this year soared more than 350 per cent to a record 72, compared with just 16 in June. (See Table 2)

Escalating prices of super-luxury apartments have not put buyers off. In fact, most such developments - like The Marq at Paterson Hill, Parkview eclat, Scotts Square and The Boulevard Residences - have reported good sales, with foreigners buying off the plan without even viewing showflats. At the high end of the market, we are dealing with excess wealth, not merely income. Hence, some of the factors that influence the rest of the market do not come into play in this segment.

High-end apartments indisputably cost more nowadays, but what do you get for your $5 million? Is there really much difference between, say, a $1 million apartment, a $5 million and a $10 million model? Besides the current property boom which has pushed up land prices, there is another reason for the soaring prices of top-notch apartments. Developers are loading them with more luxurious features to justify higher pricing. We note that apartments above the $5 million mark boast dramatic additions, such as top-of-the-line fixtures and finishes, sophisticated amenities and sprawling living areas that normal apartments do not have. Parkview eclat, for example, offers superior finishes and state-of-the-art appliances such as mirror televisions, spas and custom showers to create a hideaway for hard-working owners to take a break from their hectic lifestyles.

Hayden Properties’ latest development at 37 Scotts Road has taken opulence to an even higher level. It features a glass car elevator so owners can park their exotic wheels near their entrance. Assuming the development costs $3,000 per sq ft, it will cost as much as $600,000 for the parking space. Aside from providing additional functionality, such features imply a certain social status for owners. Large living areas and bedrooms are other common characteristics of luxury apartments. Hence, units that come with separate guest suites, spacious home entertainment rooms, wine cellars and open spaces, which were rare in the past for high-end apartments, are offered more commonly now.

The Marq at Paterson Hill and Cliveden at Grange offer the spaciousness of a bungalow in a luxury condominium setting. The love of space is reflected in the increasing number of large units sold. From January to July 2007, 1,250 units bigger than 2,500 sq ft were sold - 75 per cent more than in the same period last year. (See Table 3)

In terms of amenities, we have also seen vast improvements. Developers are increasingly aware that people are not buying a mere home but a lifestyle. In the past year, some developers have come up with creative ideas to provide a more attractive living experience for purchasers.

St Regis Residences and Beaufort on Nassim are tying up with hotel operators to provide hotel-style services. And Hilltops by SC Global promises a resort-style environment. We expect this trend of joint ventures between developers and prestigious hotel brands to continue.

Another distinguishing feature of luxury apartment buildings is the level of security. Developers are expected to place more emphasis on this as personal privacy and safety are big concerns. High-tech equipment such as fingerprint recognition and even eye scanners are being installed to identify residents and visitors. Cameras are mounted in every corner, panic buttons are wired to the bedside and a security guard placed outside each apartment to provide 24-hour surveillance.

The list continues, with buildings designed with infrared sensors that will sound alarms to warn security guards if moving objects are detected. Other security measures such as bullet-proof windows, a separate route and lifts for evacuation, a safe room that is bullet-resistant and wired with a phone line, back-up generators and keyless entry systems could be seen in future projects.

Compared with prices of high-end property elsewhere, Singapore has room for growth. In London, the average price for top-end apartments stands around $8,900 psf. In Monaco, the price of a luxury condominium averages $5,000 psf, while in New York it is about $4,500 psf. Apartments at Roppongi Hills, Tokyo, average around $3,400 psf, while in Hong Kong, prices of luxurious apartments average $3,100 psf, though those in the super-luxury category have now topped $7,800 psf.

Despite recent turmoil in global financial markets, the mid to long-term outlook for the Singapore economy remains positive, with the government upgrading GDP growth from 5-7 per cent to 7-8 per cent this year. The narrowing of the revised forecast to just a single percentage point range - from the usual two-point range - shows the government’s confidence. Furthermore, Prime Minister Lee Hsien Loong has increased the long-term GDP growth target by one percentage point to 4-6 per cent per annum.

Going forward, we expect the property market to remain optimistic, with high-end prices likely to increase another 20-30 per cent a year until 2010, mainly due to the quality of projects and increasing land prices.

Land prices are likely to rise at a slower pace after strong growth in 2006. The increase in apartment prices is likely to be attributed to the fancy items and amenities that developers include. Furniture from the exclusive Lamborghini or Armani/Casa lines, Hasten Vividus beds that cost almost $120,000 apiece and high-end entertainment systems are just a few of the new frills that will allow developers to market the project as unique, so as to command a premium.

Ku Swee Yong is director of marketing and business development, Savills Singapore. Jane Kwa is an analyst, research & consultancy, Savills Singapore

Source : Business Times - 27 sept 2007

Singapore Property - Buy , Sell , Rent , Invest

Mindy Yong
(+65)91002985
mindy@mindyyong.com
http://www.hotvictory.com

Singapore Property investing - doing the math

Singapore Property investing - doing the math

ROY A VARGHESE examines two real-life scenarios to show investors the importance of timing in calculating risks and returns
MOST individual investors of real estate have a gut feel about whether they made, lost or broke even after holding their property for a certain period. In reality, few attempt to do the math to measure how well the investment truly performed and whether they were rewarded for the risks they took.

The only ones who are fairly confident of quantifying their profit or loss are the ‘flippers’ who speculate and deal in the sub-sale market without involving bank loans, rental income and outgoings.

This article takes the reader through two real-life case studies of investing in private residential properties in Singapore over two different time periods. The focus is on getting a sense of timing, time horizon, interest rates, rental yields and rate of returns. The outcome is to help an individual investor assess if real estate investing is worth the risks involved.

Case 1: 1982 to 1991

Not many of us will recall that there was a red-hot residential property market in Singapore in the early 1980s. Condominiums were making a splash and the Central Provident Fund was made available for investment in properties. It’s hard to believe but mortgage rates were in the low teens in Singapore at that time. The particular property in this case was in the Pandan Valley area. It was a brand new 1,000 sq ft studio apartment that was launched at $300 per sq ft. The initial tenancy was at $2,500 a month. This translated to a gross rental yield of 10 per cent, bearing in mind that mortgage rates were around 13 per cent a year.

Everything was fine until the recession of 1984. The monthly rent dropped to $900. The value of the condo unit languished at the $200,000 level for the next two years. The gross rental yield fell to a more realistic 5.4 per cent (annual rental of $10,800 divided by prevailing market value of $200,000), almost in line with mortgage rates prevailing through the brief recession.

If the owner had sold the property after holding it for five years, the capital loss would have been massive. However, the property market recovered and by 1991, this studio apartment was sold for $400,000. The owner was not prepared to hold on because of the uncertainties connected with the first Gulf War.

More importantly, the investor decided to use the proceeds to upgrade his primary residence. Intuitively, he was satisfied that he had broken even in terms of cash flow. But he did not know (or care) that his actual internal rate of return (IRR) was only 6 per cent a year for the 10-year holding period.

Incidentally, an opportunistic investor who bought an identical unit in 1987 would have realised an IRR of 34 per cent a year in 1991. (see sidebar).

The question is: Was the investor who held the property from 1982 to 1991- while suffering the throes of economic upheavals - fairly rewarded for the risks he took?

Case 2: 1996 to 2007

This period in time will be more familiar to most of us. The climax of the bull market of the 1990s came about unexpectedly when the government intervened in May 1996 with anti-speculation measures. Our second investor bought a brand-new condo in District 9, a few months prior to the drastic new housing rules. The 1,300 sq ft three-bedroom unit was acquired at $1,200 psf, or $1.56 million. The first tenant paid $4,500 a month for a gross rental yield of 3.6 per cent. The interest rate was 5 per cent a year in the initial period, but steadily dropped to 1.5 per cent in 2001.

Till today, this condo is very marketable and the maximum period of vacancy between tenants was six weeks. The rent fell to $3,000 a month in 2000 for a gross yield of 4 per cent (annual rental of $36,000 divided by the market value of $900,000 in the downturn years).

Other property owners who did not have the holding power were forced to sell at a loss at around the turn of the millennium. Our investor took the lumps and hung on. By the end of 2006, with strong interest for second tier properties, the investment broke even compared to the original purchase price in 1996.

If this unit is sold today, the investor can pocket $1 million after settling with the bank (sales price of $1.8 million less outstanding mortgage of $800,000). The internal rate of return from the date of acquisition now stands at 3 per cent a year over 11 long years.

The question is: Should the owner sell now or wait for a more respectable return? What is the appropriate benchmark to gauge if this investment has met the threshold for an acceptable return?

The two real-life cases were selected to demonstrate that timing in property investment is critical. Peak to peak time horizon within a property cycle may result in a lower than optimal rate of return. Investors cannot anticipate external forces that may derail the best laid plans. Speculators know this too well and they have no intention of holding property longer than necessary. It’s simply capital gain they chase.

Exposure to real estate is part of a sound overall investment strategy. This exposure may not necessarily be in bricks and mortar (which has no liquidity) and should be beyond Singapore (for diversification). One alternative for liquidity and diversification is to invest in a portfolio of global property shares, funds and Reits. Due to higher risks, the expected rate of return from a well-timed property investment will be higher than a globally diversified portfolio of property securities.

If we assume an average inflation rate of 3 per cent a year in Singapore, then any investment should exceed this minimum return in the medium to long term. Then, there is the risk premium for property: an average net rental yield of 3 per cent and capital gain of 5 per cent add up to 8 per cent a year total return, or 5 per cent a year above inflation.

A useful proxy for the local landscape is the All Singapore Equities Property Index (left). The total return for the period August 1997 to August 2007 was 4 per cent a year. That’s a dreadful performance indeed for the long-term investor in Singapore property stocks during this eventful decade. Maybe our Case 2 investor should not feel too badly after all.

In conclusion, investing in residential property provides pride of ownership and a hedge against inflation. Whether it delivers adequate income or capital gains to an investor depends on many factors. In a nutshell, the property investor should acquire a quality product, pay a reasonable price and have the ability to hold for a long enough time horizon to earn the appropriate return.

The property agent, conveyancing lawyer and banker play their part in the buying and selling of the asset. These roles are necessary to ensure a smooth transaction. An experienced financial adviser can offer advice on the required return on investment, asset allocation and risks connected with the property as part of an overall investment portfolio.

Roy Varghese is director, financial planning practice at ipac Singapore. The views expressed are his.

Source : Business Times - 27 sept 2007

Singapore Property - Buy , Sell , Rent , Invest

Mindy Yong
(+65)91002985
mindy@mindyyong.com
http://www.hotvictory.com

Singapore Looking good

Singapore Looking good

By ARTHUR SIM

THERE is a lot to smile about these days.

A broadbased recovery in the housing market now looks imminent with some developers feeling confident enough to put in new benchmark bids for 99-year suburban leasehold sites.

But HDB upgraders are finally making a comeback, bolstered no doubt by salary revisions in the civil service and mid-year bonuses.

Even the much-anticipated fallout from the United States sub-prime crisis and subsequent global credit crunch appears to have left the Singapore property market relatively unscathed. Not only have foreign institutional investors continued to pump money into the property sector, a new base of investors, most notably from the Middle East, are making their presence felt.

Of course, there is still a level of volatility in some segments. The high-end and luxury residential sector may see both foreign and local investors make more cautious decisions about buying into a segment that is already a little peakish.

Speculators, who have been driving up prices in the high-end and luxury segments, also appear to be beating a retreat, after considering the upsides in flipping properties no longer worth the risks.

Emerging markets are also looking like pretty safe bets though.

Few will have failed to notice that when the US sub-prime situation started to unravel in July and August, the China and India markets seemed impervious to its effects.

The growth story of both these powerhouses is well known, so much so that industrialists and developers alike are looking for new frontiers.

Vietnam is certainly a hot favourite now but closer home, Malaysia too holds many opportunities.

And if the Singapore market is anything to go by, the increasingly buoyant high-end sector in its capital city certainly bodes well for the rest of the real estate market.

Risk aversion may yet be the catch phrase of choice for the months ahead.

Not surprising then, financial analysts have come out in support of the mass market and the mid-cap developers most exposed to this segment.

Also looking relatively safe is the growing Singapore real estate investment trust (S-Reit) sector. The first Reit was listed in 2002 and, to date, there are 17 S-Reits with more expected to be listed here, giving even more depth to the market.

Source : Business Times - 27 sept 2007

Singapore Property - Buy , Sell , Rent , Invest

Mindy Yong
(+65)91002985
mindy@mindyyong.com
http://www.hotvictory.com