Singapore-based property developer Fragrance Group has put its 29-storey office tower on the edge of the Raffles Place central business district for sale at an indicative price of S$715 million ($514.8 million), adding to signs commercial property deals are picking up in the city after transactions slumped across Asia Pacific in the first half of this year.
Located at 15 Hoe Chiang Road in Tanjong Pagar district the building occupies a 39,337 square foot (3,654 square metre) freehold site, and can be redeveloped into a mixed-use residential and commercial project, exclusive marketing agent JLL said in a statement late Tuesday.
Despite the economic fallout from the Covid-19 pandemic, JLL expressed optimism regarding investor appetite for redevelopment sites in key gateway cities such as Singapore. The real estate broker said in a report late last week that global institutional investors have an estimated $40 billion of dry powder ready to be deployed should opportunities arise.
Optimism for Gateway Cities
“Our interactions reinforce the positive sentiment investors have towards core assets in major gateway markets like Singapore and their willingness to deploy capital when prime assets come to market,” said Tan Hong Boon, executive director for capital markets at JLL in Singapore. “Redevelopment sites in CBD locations have evergreen potential and are always sought after, even in challenging environments like the age of Covid-19.”
The property, called Tower 15, is located across from the Tanjong Pagar container terminal at the southern fringe of Singapore’s urban core, offering future tenants panoramic views of Sentosa Island, home to Universal Studios theme park and Genting’s Resorts World Sentosa integrated resorts.
In March 2019, the government announced plans to redevelop the waterfront around the CBD over the next decade, starting with the relocation of the freight terminal at Tanjong Pagar to Tuas in western Singapore. The area covers 30 kilometres of the city’s southern coastline spanning about 2,000 hectares (4,942 acres) of land for potential redevelopment – almost six times that of the new downtown in Marina Bay.
The asset’s buyer can build a maximum 37-storey mixed-use tower on the site with a gross floor area of 310,604 square feet (28,856 square metres) based on a gross plot ratio of 7.89 times. Under the government’s CBD incentive scheme, developers are granted higher plot ratios if they propose to convert older office buildings into residential or hotel properties.
Based on the maximum GFA, buyers are paying an effective price of S$2,302 per square foot of potential buildable space, according to Mingtiandi’s calculations.
Second Attempt to Sell Asset
Fragrance Group, controlled by tycoon Koh Wee Meng who got a start building hotels in the 1990s in Singapore’s red light district of Geylang, first attempted to divest the Tanjong Pagar property in 2015 but the asset didn’t change hands then.
Following the aborted 2015 sale, Fragrance Group proposed to build a hotel on the property. The company didn’t reply to Mingtiandi’s request for comment on why it decided to sell the property again instead of undertaking its redevelopment.
Hotels are among the hardest hit by the pandemic, with Singapore tourism receipts plummeting 39 percent in the first quarter to S$4 billion as average room occupancy levels sank to 58.6 percent from 85.8 percent a year ago.
The additional GFA granted under the government’s scheme, which is designed to rejuvenate the CBD by reshaping the community in the city’s urban core, makes the building attractive to developers.
In addition to its portfolio of hotels in Singapore, Fragrance Group lists among its investment properties the 26-storey Fragrance Empire Building on Alexandra Road, as well as four more commercial, industrial or mixed-use assets in the city.
The company also has invested in hotels in the UK and Australia, as well as holding commercial and residential properties in the two countries.
Government Incentive to Entice Buyers
“The additional GFA under the government’s CBD incentive scheme certainly adds a layer of attractiveness to potential buyers,” Tan said. “Sites that are marked for redevelopment and locales earmarked as growth regions in Singapore are also in-line with the government’s medium to long term plans. Investors do see upside in this alignment.”
In November, the government approved a plan by Fragrance to redevelop Tower 15 as a hospitality property of up to 248,483 square feet of gross floor area, based on a gross plot ratio of 6.31 times.
Earlier this year, the government granted an additional GFA of 25 percent for the property including ancillary facilities and the carpark.
The expression of interest exercise for the property will close on September 11, 2020, JLL said. Fragrance Group originally purchased the asset in 2012 for S$360 million.
CBD Buildings Earmarked for Redevelopment
The proposed sale of Tower 15 comes as older buildings in the CBD are being earmarked for redevelopment or put on the block to take advantage of the higher plot ratios the government is granting for redeveloping buildings that are more than 20 years old.
Earlier this week, financially-troubled Pacific International Lines, Singapore’s largest container shipping company, put its headquarters near the city’s Raffles Place central business district on the market for an indicative price of S$350 million ($252 million), a source familiar with the transaction told Mingtiandi on Tuesday.
Other ageing office buildings up for redevelopment in central Singapore include the AXA Tower. The 50-storey property near the Tanjong Pagar MRT station will be redeveloped by Alibaba Group in partnership with Perennial Real Estate as the headquarters of the Chinese e-commerce giant in the city-state, the partners announced in May.
City Developments is also reportedly looking at redeveloping the nearby 38-storey Fuji Xerox Towers on Anson Road.
“Investors have long seen the positive market fundamentals and the supportive regulatory framework of Singapore when deploying capital,” Tan said. “The market provides a high level of comfort due to political and socio-economic stability and its track record as a destination for asset and capital preservation.”