(C) The performance of Non-Residential Property segment

[C.1] Grade A office rents fall in Singapore

With the massive corporate layoffs that are still on-going in the key financial services sector, especially among foreign banks, demand for office space is expected to come down drastically throughout 2009.

Office rents for Grade A/Prime space in Singapore tumbled 18% in Q1 2009 after a massive 14% fall in Q4 2008 on a year-on-year (yoy) basis. The rents fell to an average of $15.00 psf per month (pm), down from $17.15 psf pm a year ago. It may drop further to $12.30 psf pm according to CBRE’s estimate.

[C.1.1] Office vacancy rate to rise further

Grade A vacancy by end-March 2009 rose from 0.9% in end-2008 to 2.9%. In the previous quarter (Q4 2008) it was 0.9% compared to 0.2% a year ago.

There could be an excess supply of over a million sq ft office space for the whole year, around the levels the market has experienced as recently as 2002/2003.

In the broader Core CBD comprising the micro-markets of Raffles Place, Marina Bay, Shenton Way and Marina Centre, the vacancy rate increased from 4.6% as at end-2008 to an estimated 6.9% as at end-March 2009.

These vacancy figures do not take into account 'shadow space' or excess space that companies try to sublet.

[C.2] Negative take-up of industrial space

JTC Corp has been hit by a sharp fall in the take-up of its industrial space during a tough fourth quarter (Q4) in 2008.

In ready-built factory space, lease terminations of 21,200sqm exceeded the 20,000 sq m of new space leased during the quarter, resulting in a negative net take-up of 1,200 sq m.

In the whole of 2008, some 323 firms ended their leases, with the bulk of them being in multi-storey factories. The figure was 318 firms in 2007.

Take-up of prepared land slumped 41% to 200.9ha. In all, 62 firms terminated leases, a rise on the 53 firms in 2007.

[C.3] Slower take-up rate at New Orchard malls

The three upcoming new lifestyle malls along Orchard Road that set tongues wagging a couple of years ago are now bracing for further gloom in the economy.

Prime retail space at Orchard Central, next to the Somerset MRT Station, Ion Orchard right above the Orchard MRT station, and 313@Somerset on the former Hotel Phoenix site was once the most coveted prizes by leading lifestyle brands. But the take-up rate has recently slowed to a crawl.

In October 2008, Far East Organisation (FEO) which owns Orchard Central announced that the mall was 60% leased, at prices between $20 psf and $70 psf. But the occupancy has risen to only 65% by the end of February this year. FEO has recently said that the mall will be opened in June 2009 with 75% tenancy.

The management of Ion Orchard, which boasts of the dearest super prime retail space in Singapore at $80 psf, has declined to comment on the take-up rate for the retail space. However, in September 2008, it did say that the mall was 50% leased.

Likewise, 313@Somerset which is being developed by Lend Lease Retail from Australia, still has more than 30% vacancy in its retail space available for lease.

(D) The performance of Collective Sales

Most news on collective sales was on court rulings on minority objections to sale orders issued last year. So far this year, only Katong Mall was sold collectively. Below are excerpts of recent court rulings on collective sales.

[D.1] Gillman en bloc sale – consent based on TOP date

The Court of Appeal had dismissed an appeal by the minority owners of Gillman Heights to frustrate the collective sale of the property.

The minority owners argued that because Gillman Heights obtained its certificate of statutory completion only in 2002, it needed 90% consent - which the buyers did not have. Currently, 80% consent is needed if a development is more than 10 years old, and 90% consent if it is less than that.

[D.2] Regent Court en bloc sale – Buyer can make good financial losses

Justice Judith Prakash who ruled that the en bloc sale of Regent Court should go through last October has explained the ground for the judgement.

Two objectors had in December 2007 claimed that they would suffer financial losses as their share of the sale proceeds would only amount to $932,000 but they had bought their flat for $993,000.

However, the buyer, Regent Development, had undertaken to settle the gross difference of $93,935.75 once the sale went through. The STB did not consider this payment and took account of only the objectors' purchase price and the en bloc sale price. This would mean that even if 99% of owners voted for the sale, the collective sale could not go through either.

Justice Prakash explained that the Land Titles (Strata) Act empowered the STB to ensure that the buyer make good any loss suffered by any objecting owners.

[D.3] Horizon Towers en bloc sale – bad faith prevented it from sale

After almost two-and-a-half years, the minority owners of Horizon Towers have finally succeeded in blocking the $500 million collective sale of their homes at Horizon Towers. The minority owners had argued that the deal was done in bad faith as a higher $510 million offer from Hong Kong firm Vineyard Holdings was not taken seriously.

The Court of Appeal agreed with the minority owners that the sales committee did not secure the best price obtainable for the property.

[D.4] Katong Mall en bloc sale – first retail mall to be sold collectively

Katong Mall, a four-storey complex occupied by 258 shops and offices, has become the first full-retail development to be collectively sold in Singapore.

When the collective sale deal was proposed in September 2007, the minority dissenters tried to block the deal on ground of bad faith. The dissenters cited the fact that the two companies that owned 72% of the mall, Golden Cape Investments and Megaton Investments, were wholly owned by the buyer, Tuan Sing Holdings.

However, the worsening economic situation has made the offer price of $219 million for the mall appeared reasonable. Average prices for commercial space have fallen 5% to 10% in the last half a year.

Prepared by Sam Gian - Independent Real Estate Sales Trainer