UIC Building sale boosts office property sector

Analysts say the proposed sale of the UIC Building along Shenton Way marks the re-emergence of Singapore’s commercial property sector.

UIC Building is the largest property in Singapore so far to be placed for collective sale and it is expected to see strong interest.

Dominating the property buzz of late are home prices in Singapore’s central business district.

But analysts say more of such homes will mean less office space.

Over the past three years, rental for top grade office buildings in Singapore jumped from less than $4 per square foot to about $6.50.

Analysts say this jump of some 70% is driven by a mix of rising demand and diminishing supply.

Said Lui Seng Fatt, Regional Director, Head of Investments, Jones Lang LaSalle: “Supply is coming in only in 2008 when the BFC – business financial centre – is ready. But with the conversion of commercial to residential, that will continue to drive the commercial value upwards. The next two years, office building supply will be very tight. So the projection of a mid-$8 (psf rental price) for Robinson Class A building is highly probable. So there’s still an upside of about 15 to 20%. That’s without taking into consideration the continued conversion of office space into residential.”

As many as three office-turned-residential projects – including One Shenton and The Clift – are set to launch soon.

And analysts say, it is likely that developers are looking to turn the Asian Chambers and UIC Building into posh downtown homes as well.

That’s because they will see quicker returns.

Analysts say it will take longer for investors to get their money back when it comes to office or commercial developments.

The lease on the UIC Building, for instance, expires in 2008.

Coupled with construction, analysts say, it will likely be 2011 before its owners can rent the property out and see some real cash flow.

But market watchers note that the commercial sector is attracting private equity money.

Lui Seng Fatt said: “In today’s market, besides the rental, besides the capital value, we also see a very strong liquidity of international funds, cross-border funds coming into Singapore. Most of the funds are quite well cashed up, they have a very strong financial structure, they’re able to hold for a longer time period. So you can see, office and commercial are now in the active play. But the local developers, most of them are focused on the trading of residential units because traditionally, that’s where they come from.”

The DBS Towers I and II, Liang Court and SIA Building were all sold to international funds in recent years.

Source: Channel NewsAsia, 29 December 2006 

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