Office REITs – UOBKH

Office REITs

Cooling off in bidding for office site

Auction for Marina View Land Parcel B located diagonally behind One Shenton has closed with only two bids, reflecting cautiousness for commercial properties due to the sub-prime mortgage crisis in the US. Marina View Land Parcel B has site area of 0.9hectare and can be developed into maximum gross floor area of 1.2m sf with at least 60% utilised for office and at least 25% utilised for hotel.

The top bid from MacQuarie Global Property Advisors came in at S$952.9m or S$779.42psf ppr. This is lower than CB Richard Ellis’ expectation of S$1,200 to S$1,300. Knight Frank has expected bids of between S$1.1b to S$1.3b or S$900 to S$1,060psf ppr. The second bid from CapitaLand came in at S$898m or S$734.52psf ppr. Some industry players are concerned that the latest site may not be awarded because the reserve price may not have been met.

Monthly gross rents of Grade A office space in Raffles Place increased by 18.2% qoq to average at $15.00psf in 3Q07. Capital values of Grade A office space in Raffles Place has also risen 23.8% qoq to an average of $2,416psf (source: Colliers International). K-REIT Asia and Suntec REIT have also recently acquired one-third stakes in One Raffles Quay at S$941.5m or S$2,115psf.

The limited supply of office space coming on stream over the next three years will provide some cushion for office properties. However, the cooling off in bidding for office sites within the Central Business District will have a dampening effect on share price for office REITs such as K-REIT, Suntec REIT and CapitalCommercial.