As the construction of the Marina Bay Sands integrated resort nears completion, a cluster of crystal-like structures covered with blue-tinted glass is also taking shape, without much fanfare, near Singapore’s harbour .
The cluster of giant structures is the S$4 billion Marina Bay Financial Centre (MBFC). And despite being constantly outshone by the attention-grabbing S$7.7 billion Marina Bay Sands, it is an equally important component of the Marina Bay area.
The MBFC, which extends the current central business district (CBD) of Singapore, reached a new milestone last week by celebrating the “topping out” of its second and tallest commercial tower — the 50-storey Tower 2 — which will house anchor tenants such as Australia’s mining giant BHP Billiton, Nomura Singapore and American Express.
In an unusual feat for an office tower, the approximately one million sq ft of lettable space in Tower 2 is already fully let out five months ahead of the completion of the building.
“We are seeing banks and financial firms moving out of the older buildings into modern offices such as the MBFC. We also see the relocation of some financial firms from Europe to Singapore and the expansion of the financial sector here to serve the fast-growing Asian market.
“All these translate into demand for MBFC,” Wilson Kwong, CEO of Raffles Quay Asset Management Pte Ltd (RQAM), told The Edge during an interview in conjunction with the topping-out ceremony last week in Singapore.
RQAM is a joint venture between Cheung Kong (Holdings) Ltd (the flagship of Hong Kong billionaire Li Ka-shing), Hongkong Land Holdings Ltd (the property arm of Jardine Matheson group) and Singapore’s Keppel Land Ltd. It was set up to market and manage One Raffles Quay, an office tower in the CBD which was completed in 2006, and subsequently the MBFC.
But RQAM doesn’t own the complex. Consortium members Cheung Kong, Hongkong Land and Keppel Land each directly own a third of the development. The S$4 billion cost of the MBFC includes the S$2 billion the consortium paid the Singapore government for the 3.55ha site a few years ago.
Swift progress
With the near completion of Tower 2, phase one of the MBFC project is coming to an end. Other components of phase one include Tower 1 (33 storeys and 620,000 sq ft of lettable space), the Marina Bay Residences (55 storeys, 428 luxury apartments), and an underground mall called the Marina Bay Link Mall.
The construction of Tower 1 was completed last year and the building is now 100% let out, with tenants moving in soon. Standard Chartered Bank is the anchor tenant for Tower 1.
Also completed is the Marina Bay Residences, for which all 428 units were sold in December 2006 at about S$2,000 psf. The first 93,800 sq ft of Marina Bay Link Mall will open in 4Q this year. It is already over 65% leased.
The construction of the second and final phase, comprising Tower 3 (46 storeys with 1.3 million sq ft), the Marina Bay Suites (66 storeys with 221 luxury residential suites) and the remaining 82,200 sq ft of retail space in the Marina Bay Link Mall, is expected to be completed in 2014,
Tower 3 (completion scheduled in 2012) has already secured pre-committed leases for over 55% of its space, with DBS Bank as its anchor tenant. As for the Marina Bay Suites, 92 units were sold at a private preview in November 2009, at between S$2,200 and S$2,500 psf, contributing to a total sales proceeds of S$400 million.
Good response as property market picks up
Thomas Tan, director of marketing (residential) of RQAM, says the launching of the remaining 129 units at Marina Bay Suites will depend on “market conditions”, hinting that RQAM will likely hold on to the remaining stocks for a while to capitalise on further appreciation in psf prices.
“The re-sale market for the units in Marina Bay Residences is now about S$2,400 to S$3,500 psf (against the average launch price of S$2,000 psf in late 2006). This shows good demand and price appreciation potential for the Marina Bay Suites. Supply is limited. In fact, we are the only one with supply of residential units in the CBD at the moment, with the best view overlooking the harbour,” says Tan.
Marina Bay Residences and Marina Bay Suites are the only two components of MBFC where the units are open for sale. The commercial components, comprising Tower 1, 2, 3 and the Marina Bay Link Mall, are only for leasing.
Kwong declined to reveal the specific rental rates that the company had secured for Tower 1, 2, and 3, except to say that the tenancies were locked in at “market rates”.
He says psf rental for grade-A offices in the CBD peaked at S$16 to S$18 in 2008, and it is now half that at about S$8 to S$9, though MBFC, which is modern and purpose-built for the financial sector with an unrivalled location overlooking the harbour, tends to command some premium.
“Based on research reports, the grade-A office rental market has stabilised and is holding up well at the current rates, with improving demand outlook,” says Kwong.
While MBFC may add more supply to the office market in Singapore’s CBD, he adds that demand for office space will catch up as companies move or enlarge their regional operations to or in Singapore to handle more business volume in this part of the world. Also, tenants moving out of older office buildings in the CBD will make way for the refurbishment of these buildings for residential purposes and limit over-supply of office space.
In terms of an exit strategy for the consortium members of MBFC, Kwong says it is possible for the shareholders to eventually inject or dispose of the commercial components of the project into real estate investment trusts, or REITs.
It is interesting to note that Cheung Kong and Keppel Land sold their respective one-third stakes in One Raffles Quay to Suntec REIT and K-REIT Asia in 2007. Cheung Kong is the major shareholder of Suntec and Keppel Land is the key shareholder of K-REIT.
But it is only worthwhile to inject the commercial component of MBFC when it has achieved desirable yields, enabling its owners to cash out or monetise their investments at a good price.
On whether the MBFC’s return on investment, based on current rental rates, is far below management expectation given that the project was conceptualised and its S$4 billion costing done during the economic boom, Kwong says one can’t have a short-term view on any project of this scale.
“You have to take a long-term view. The strong response to the MBFC indicates that the project has good long-term potential. So is Singapore’s growing presence as an international financial centre,” he says.
This article appeared in Corporate page of The Edge Malaysia, Issue 802, April 19-25, 2010