Paya Lebar Commercial site with conditions

Singapore- THE Urban Redevelopment Authority has finally released a much anticipated, big-ticket mixed development site in Paya Lebar Central.

Nearly 55 per cent of the project's maximum gross floor area (GFA) of 164,794 square metres (about 1.77 million square feet) has to be for office use. The rest of the space can be for additional office,retail, entertainment, F&B and residential uses.

Small strata office and retail units will not be in play for this project, as URA is limiting the number of strata lots to just five for the entire office component of at least 90,000 sq m (968,751 sq ft) GFA. This points to an average strata office size of under 200,000 sq ft. For the retail and activity-generating uses, not more than three strata lots will be allowed. The residential component can comprise up to 440 individually strata titled units.

Market watchers reckon that URA is not allowing small strata units so as to preserve the project's image and quality given that the land parcel, which features two adjacent plots next to the Paya Lebar East-West Line and Circle Line MRT stations, will be the centrepiece of URA's plans for developing a major commercial hub at the fringe of the city.

The problem with small strata units, say market watchers, is that developers would be tempted to sell them individually to realise higher per square foot (psf) pricing - resulting in fragmented ownership and a lack of control of tenant mix as well as weak overall theme and centre management. Big occupiers would also not lease office space in a development with myriad strata units in different hands.

"Strata malls and office buildings . . . (tend to have) a development image, even for brand new buildings, that is lower compared to single-owner commercial developments," said R'ST Research director Ong Kah Seng.

With small strata units out of the picture, the development will have a more sophisticated positioning and can be expected to attract major tenants such as banks that would like to decentralise their back-office and non-core office functions. Such big occupiers will lease a large area over multiple floors, Mr Ong added.

The flip side to URA's restriction is that it would reduce the site's attractiveness to some potential bidders. Only deep-pocketed investors will take on a project like this, suggested DTZ's SEA chief operating officer Ong Choon Fah.

Industry players' expectations vary widely: some see just three to five bids at around S$700-S$850 psf ppr, others predict as many as eight bids, with the top bid crossing S$1,000 psf ppr. This would price the land anywhere from S$1.24 billion to over S$1.8 billion.

The land parcel is an enlargement of an original site that URA launched on the confirmed list back in 2011. At the time, the site had minimum office and hotel components. No residential use was allowed.

A UOL Group-Singapore Land joint venture emerged as the sole bidder for the site at the October 2011 tender closing, but the state found the S$566 psf ppr bid too low to make an award.

The site (now Plot 1) was then moved to the reserve list in the H1 2012 Government Land Sales (GLS) Programme), where it remained before it was augmented with the neighbouring Plot 2 and moved to the current H2 2014 confirmed list. In its latest form, residential use is allowed but not a hotel.

The problem with Plot 1, noted an industry veteran, is that a canal diagonally cuts across it, splitting it into two triangular halves that will pose greater design and construction challenges. "In the latest tender, sweeteners have been thrown in, such as including Plot 2, which has a better configuration since the canal cuts it into two squarish plots. Previously, Plot 1 enjoyed direct connection only to the Circle Line station, but with the addition of Plot 2, the development will also enjoy direct connection to the East West Line station.

"However, URA's restrictions on strata subdivision of the office and retail space would also reduce the attraction of the land parcel as bidders cannot freely subdivide this space into small lots for sale at a higher psf rate to investors. The timing of the site's release amid an office rental recovery, though, is good."

Moray Armstrong, CBRE executive director, office services, said: "Paya Lebar offers a great opportunity to capitalise on the clear demand for quality decentralised office locations. The office component in the site will undoubtedly appeal to corporate occupiers, not least given the connectivity to the MRT, proximity to the CBD and Changi and also the integration with retail".

Agreeing, JLL head of markets Chris Archibold said: "We have had numerous occupiers express interest in this area. The quantum of office space that will be made available in this site will also be an attraction as the site has enough critical mass to change the dynamics in the area."

He estimates the likely pricing of the site at S$700-S$850 psf ppr.

Chestertons managing director Donald Han predicts six bids, at least half of which should cross S$1,000 psf ppr. "A strong selling point is the flexibility of usage to accommodate retail/F&B and residential uses of up to 45 per cent of GFA. Integrated mixed-use projects tend to do well in today's landscape."

Market watchers expect bidders to form consortiums to minimise risks, given the large investment in the development. "The big boys will be there, including those with Reits to which they can divest the office and retail space in large chunks," said Mr Han.

Source: Business Times

PROPERTY LAUNCHES & INVESTMENTS

Property Launches & Investments

Paya Lebar Commercial site with conditions

Comments

Leave your comment