Would you pay $737 million for this building?

Another office block is up for sale as buyers leverage on the sharp increase in prices. The owner, German fund manager SEB, of 77 Robinson Road, formerly known as SIA Building, is expected to put the office building onto the market for sale soon. This is the fourth commercial building that is put for sale in the last 2 weeks. Indicative price is about $2,300-2,500 psf of net lettable area, which would work out to around S$678- 737m for the 35-storey office tower with a total NLA of about 295,000sf and 180 car parking lots. The site has a remaining land lease of about 82 years.

We think that investors are likely to be more selective as more buildings are up for sale at optimistic pricing. While capital values are still below the 2007 peak, the high prices coupled with the lag in passing rentals would tighten yield. This could shift investors’ interests to development activities that could generate better returns.

For instance, CCT has recently revived its Market Street redevelopment project, which will yield 6% on cost, while CMA will jointly develop a white site next to Jurong East MRT station with CMT and CapitaLand. The project is also expected to generate a 6% yield on cost.

Development activities more viable choice? Going forward, we expect the government land sale sites including the 2.07 ha mixed-use site at Paya Lebar MRT Station and soon-to-be-launched commercial site along Robinson Road and Cecil Street to be keenly sought after.

Although development activities carry development risks, the higher returns and expectations of sustained rental uptrend are likely to continue to attract developers’ interests to this space.