[C.1] Rents for ground floor shops in Orchard Road hold up

According to statistics from Cushman and Wakefield, the average monthly rental value for prime street-level retail space on Orchard Road dipped 1.1% in the six weeks between end-Q1 2009 and mid-Q2 2009, lower than the 4.6% quarter-on-quarter contraction seen in Q1 2009.

The average monthly rental value for prime ground floor Orchard Road retail space stood at $36.50 psf from $36.90 psf as at mid-May. The latest mid-Q2 2009 figure represents a fall of 5.7% since end-2008.

According to Knight Frank, ION Orchard, Orchard Central, 313@Somerset and Mandarin Gallery are among the new malls that will add a total 1.8 million square feet of net retail space in Singapore's prime Orchard Road shopping belt from now till mid-2010. This will be 40% increase from the current stock of 4.5 million sq ft.

However, despite the downward pressure on retail rents due to the on-going H1N1 pandemic and the reduced tourist arrivals, rents for ground floor space at Orchard Road will probably hold up better than rents for upper floors retail space. This is because street-level units facing Orchard Road are always in short supply.

[C.2] Office Buildings in CBD Sold at Huge Losses

After a nine-month lull, two commercial buildings in the central business district (CBD), namely Parakou Building and Anson House, have changed hands. (The last major office investment sales deal was in June 2008 when City Developments Ltd sold the 999-year leasehold Commerce Point near Raffles Place MRT Station for $2,200 psf.)

However, while some property analysts see the sales as the return of investor’s confidence, the bad news was, both the transactions reeked of ‘desperation in an extremely challenging time’ where the sellers realise capital losses of $46.62 million and $44.5 million for Parakou Building and Anson House respectively. Below are the brief facts of the sales.

[C.2.1] Parakou Building sold at a loss of $46.62m

Parakou Building, at the corner of Robinson Road and McCallum Street, has been sold to a Cathay Organisation subsidiary at $81.38 million or $1,280 per square foot of net lettable area (NLA). The $81.38 million transacted price for the 16-storey freehold office block is about 36% lower than the $128 million the seller, UK fund manager New Star Asset Management Group, paid for the property two years ago.

[C.2.2] Anson House owner lost $44.5m in sale

Anson House, a 13-storey office block along Anson Road, has been sold to an unidentified group of investors for about $85 million or slightly over $1,100 per square foot of net lettable area (NLA). The sale price reflected a loss of $44.5 million as the Macquarie-managed fund had bought the office block for $129.5 million in 2007. The office block has a remaining lease of about 87 years. The net yield on the investment based on the $85 million transaction price would be more than 6%.

[C.3] Prime Office Rent Fall Continues

Based on figures released by the Urban Redevelopment Authority (URA), the office take-up rate has slid for two consecutive quarters of 366,000 sq ft in Q4 2008 and nearly 323,000 sq ft in Q1 2009.

The office market continues to be troubled by the upcoming new supply of 9.9 million sq ft net lettable area (NLA) of offices slated for completion from 2009 to 2013. This year alone, the new supply is projected at about 2.56 million sq ft, 83% above last year's 1.4 million sq ft.

[C.3.1] Prime Raffles Place office rents drop 33.5% Y-O-Y

According to data from Cushman & Wakefield, the monthly average rent for prime Raffles Place office is now $9.44 psf in May 2009. In percentage term, the average rent dropped 6.6% in the six weeks since the end of Q1 2009. However, the fall is much smaller than the 28.8% quarter-on-quarter drop registered in Q1 2009.

This brings the total year-to-date decline to 33.5% from $14.20 psf a month at end-2008.

[C.3.2] Grade A Raffles Place office rents ease 8.7% Q-O-Q

The average Grade A Raffles Place rental eased 8.7% in mid-Q2 2009, again a more moderate drop than the first quarter's 27.7% Q-on-Q slump.

In the other micro-markets such as, Shenton, City Hall and Orchard, the overall prime office vacancy rate inched up 0.4 percentage point to 5.5% as at May 2009, milder than the 2.1-percentage point Q-on-Q hike to 5.1% in Q1 2009.

[C.4] Distressed properties may flood markets

The GIC Real Estate chief said in a public seminar in May that distressed property assets may emerge in developed markets in the next two years as a result of refinancing difficulties. A ‘flood’ of distressed properties may develop if the credit markets remain tight as large volumes of loans mature in the near future.

Citing estimates from Goldman Sachs, another speaker at the public seminar, Professor Joseph Gyourko said that US$1.2 trillion worth of commercial property debt will mature in the United States from 2009 to 2011. And with the near shutdown of the commercial mortgage-backed securities market, some property owners will not be able to obtain refinancing.

Such a ‘flood’ will affect the capital value of all commercial properties in the entire world due to the inter-connectivity of the markets in the various global cities, of which Singapore is a part.

[C.5] JTC Ready-Built Space Suffer Negative Take-Up

Net take-up of JTC ready-built factory space fell in Q1 2009. This has been the third straight quarter of negative growth in take-up rate for JTC Corporation.

The negative net allocation of 8,900 sqm in Q1 had resulted from 10,800 sq m of space leased out and 19,700 sq m of space surrendered. This is a sharp deterioration from the minus 1,200 sqm registered in Q4 2008, and the minus 500 sqm in Q3 2008.

A large decline in the amount of space leased or rented out accounted for the poor showing in Q1. The gross allocation of 10,800 sqm fell 46% quarter-on-quarter and 64% from Q3 2008.

[C.5.1] JTC Ready-Built Space – Flatted Factories

A total of 19,700 sq m of space were returned in Q1 and the surrendering was 7% less than Q4 2008 and 35% less compared with Q3 2008. Most of the 64 companies which returned their flatted factories to JTC.

Support industries in logistics, services and construction together accounted for the bulk of terminations, at 53%. The precision engineering industry also fared poorly, making up another 26% of terminations.

[C.5.1] Prepared Industrial Land

The only comfort is in the prepared industrial land segment in Q1 2009 where the net take-up rose 80% from Q4 2008 to 15.3 ha. However, the net take-up of prepared industrial land was 114.9 ha in Q1 2008 - more than seven times that in Q1 this year.

In terms of surrendering of leases, 13 companies returned prepared industrial land to JTC in Q1 – with electronics and precision engineering industries contributed to more than half of the terminations.