Just one bid for Paya Lebar commercial site

Straits Times: Wed, Oct 19
THE tender for a commercial site in Paya Lebar Central attracted just one bidder and a price well short of expectations. The lacklustre response for the 2.07ha site at the junction of Sims Avenue and Tanjong Katong Road is as stark a sign as any…
THE tender for a commercial site in Paya Lebar Central attracted just one bidder and a price well short of expectations.

The lacklustre response for the 2.07ha site at the junction of Sims Avenue and Tanjong Katong Road is as stark a sign as any of just how bearish the office market has suddenly become.

UOL Group and Singapore Land jointly bid $529.5 million – or $566 per sq ft per plot ratio (psf ppr) – for the land. That is 35 per cent less than bids for a similar plot nearby sold for just six months ago.

The two Paya Lebar sites are not strictly comparable.

The one that sold in April for $586 million – or $872 psf ppr – attracted 10 bids, including those from heavyweights such as CapitaLand and Far East Organization.

SLP International research head Nicholas Mak noted that it has a better location and other attributes than the second site and so commanded a higher land price.

He said the second site also brings building difficulties. ‘Construction will be more challenging and expensive. The soil (at the second site) consists of soft clay and the engineers will have to manage the water canal that goes through during the construction,’ he added.

Even with these factors, the single offer for the second site is so much lower than the other plot’s land price that the Government could even reject the bid, said Mr Mak. He also noted that the $529.5 million offer might be ‘opportunistic rather than pessimistic’.

When the tender was launched in July, experts predicted another big field of developers with a top bid expected to exceed $860 psf ppr given the Government’s strategy to develop suburban office space in areas like Paya Lebar and Jurong.

But market sentiment has shifted drastically in light of the gloomy economic outlook with some analysts reducing their office rental estimates by as much as 25 per cent over the next year.

UOL Group president (property) Liam Wee Sin said the site will allow the firm to strengthen its foothold in the Paya Lebar area after having acquired Lion City Hotel and adjoining former Hollywood Theatre site in January.

‘UOL is also no stranger to taking on non-Central Business District sites such as Novena Square and United Square,’ he added. ‘As the economy expands, you would need to provide a whole suite of office space outside of the CBD to cater to tenants such as consultancies, embassies or consumer goods firms.’

The land, which can yield about 87,000 sq m of gross floor area (GFA), is earmarked as a mixed-use development comprising office, hotel and retail uses.

At least 40 per cent of the maximum permissible GFA must be set aside for office use and 15 per cent for hotel use.

The remaining space can be for additional office, hotel, retail, entertainment or food and beverage uses. Residential use is not allowed.

UOL wants to develop two towers consisting of the offices and hotel and a retail podium.

Mr Liam also noted that unlike the earlier site, the latest plot has a hotel component which could have led to lower interest as not all property players had hotel expertise.

esthert@sph.com.sg

Source: The Straits Times © Singapore Press Holdings Ltd

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