Chelsfield Said in Due Diligence for S$550M Buy of SG’s Manulife Centre From Alpha and CDL

In what would be its first Singapore deal, UK property developer Chelsfield is said to be closing in on an acquisition of the Manulife Centre on Singapore’s Bras Basah Road in the latest sign of ongoing growth in the city-state’s office market.

According to a report in the Business Times, Chelsfield is conducting exclusive due diligence on the 11-storey, 242,000 square foot (22,500 square metre) property currently owned by a joint venture between a fund managed by Keppel Corp’s Alpha Investment Partners and Singapore-listed developer City Developments Ltd.

If completed at the anticipated S$550 million ($403 million) price, the transaction would be the largest deal in the local office market in 2018, surpassing the S$516 million price achieved when CapitaLand Commercial Trust (CCT) last month sold Twenty Anson in Tanjong Pagar to a foreign fund manager now identified as Boston’s AEW.

Based on the expected price, the property would be changing hands at S$2,300 per square foot and generate an NPI yield of about 2.5 percent, as Singapore office rents rebound from multi-year lows.

Last Purchased in 2015, Up For Sale in April

Manulife Centre, previously known as Plaza by the Park, is located where Bras Basah Road crosses Bencoolen Street and is served by both the MRT Downtown and Circle lines. The property was acquired in 2015 by a joint venture between Alpha Asia Macro Trends Fund (AAMTF) II, which holds a 60 percent stake, and CDL, which holds 40 percent, for S$487.5 million. In April the Singaporean duo put their property up for sale via an expression of interest (EOI) by the owners. The Alpha-CDL venture also owns 7 & 9 Tampines Grande and the Central Mall Office Tower on Singapore’s Magazine Road.

Reports indicate that Manulife Centre is more than 95 percent let, with Manulife Singapore taking almost half the space in the building. The insurer is reported to be planning a move at the end of the year to the Manulife Tower at 8 Cross Street. While the vacancy created may be seen as a potential problem for a buyer, it may also present an opportunity to charge higher rents for a large percentage of the building.

The structure is noted in the local press for having considerable refurbishment potential, as Singapore’s ongoing reduction in car usage presents opportunities for the parking garage to be converted and made leasable for other purposes, and the retail area can be expanded by taking office space.

Strong Rental and Sales Markets

The acquisition comes in the context of a strong office market in Singapore, with grade A rents rising about 15 percent within just over a year. After a rush of development between 2016-2018, a more moderate pace of construction is now expected, while demand has remained strong with large corporations seeking prime space in good locations.

Figures from JLL indicate that overall CBD rents have risen from a recent low of S$8.41 per square foot in the first quarter of 2017 to S$9.71 in the second quarter of 2018, though the market is still below 2015 levels and far below the 2008 highs of above S$15.00. Marina Bay rents are higher and have recovered more in percentage terms, up about 20 percent over the same period.

In July, Allianz signed an agreement to lease two floors in the yet-to-be completed ASB Tower on Robinson Road for S$11.50 per square foot, an effective rent of about S$10.00. Fraser Tower Cecil Street, which received a temporary occupancy permit in the second quarter and has tenants such as Microsoft, has signed leases at about the same rate. JLL believes that rents could surprise on the upside.

Analysts warn that the market may not be as strong as the recovery would suggest, with most of the demand coming from tech and co-working companies. The financial services sector is not a major component in the equation as firms are holding back on expansion.

Two Hong Kong Deals So Far

Chelsfield, a British firm established in 1986, has been rapidly establishing an Asian presence in the past three years after bringing on board former Grosvenor Asia CEO executive Nick Loup to run its Hong Kong-based division in 2015.

In 2016 the UK developer acquired Dymon Asia Real Estate in 2016, and then last year, the Chelsfield Asia value-add fund teamed with Andrew Moore’s Pamfleet for the HK$2 billion ($255 million) acquisition of Provident Square, a 210,000 square-foot neighbourhood mall in Hong Kong’s North Point area.

Chelsfield made another Hong Kong deal earlier this year when it purchased the ground floor of The Galleria in Central from Hermes for a reported HK$900 million.