So, Hongkong Land is going to be a partner of IOI Properties Group in the latter’s Central Boulevard project in Singapore’s Marina Bay area.

And analysts are upbeat about how that’s good for IOI. But what’s in it for Hongkong Land? Especially when it means entering at a relatively pricey land cost of S$1,689 per square foot per plot ratio (psf ppr) or close to S$2.57 billion in total.

This was the price that IOI paid as the winning bidder for the 99-year leasehold site at a state tender in November 2016. In both psf ppr and absolute dollar quantum, this is a record price for a Government Land Sale (GLS) site in Singapore and considered bullish by analysts.

Well, Hongkong Land had also wanted the site at the time, bidding S$2.13 billion or S$1,398 psf ppr together with Cheung Kong.

And much has changed in the seven months since the site was awarded.

For one thing, sentiment in the Singapore office market has improved markedly in that time. To see this, we need to back up a little further than last November.

In early 2016, there was nervous energy in the Singapore office market, with fears of a supply glut given the string of major project completions that included Guoco Tower, Marina One and Duo.

As the months passed, news began to break about several large office leasing deals in the works in the new developments, resulting in a fairly strong pipeline of deals during the second half of 2016 that were concluded by the end of last year or earlier this year.

Compared with last November, there is a lot more clarity today on take-up in the new batch of office projects.

There were also worries as to whether banks – traditionally the key driver of office demand in the prime Marina Bay area – could step up to the plate again. However, expansion by tenants in other sectors – from social media to tech and related industries to co-working space providers – has resulted in a more diverse base of office leasing demand. This has given more confidence to office investors, as the likes of Facebook, Uber and Grab have signed up.

Moreover, the strategy adopted by landlords in new developments – dangling attractive packages at “loss leader” rental rates to early-bird big tenants – helped to quickly establish a floor on rents and build up precommitment rates.

Early indications of a rental turnaround have begun to emerge. Last week, BT reported that average office rental values for overall CBD Grade A and Marina Bay properties had risen quarter-on-quarter for the first time in two years.

This bottoming has occurred earlier than analysts had envisaged. However, an astute office landlord such as Hongkong Land in the thick of the Marina Bay office market would have sensed pretty early on that a rental bottoming in the locale was at hand, and is understood to have hooked up with IOI via contacts within the wider Jardine Group and sealed the deal for a 33 per cent stake in IOI’s upcoming project.

The project on the Central Boulevard site is expected to comprise two office towers of about 1.26 million square feet and a small retail podium of about 30,000 sq ft. Hongkong Land is expected to contribute its expertise in high-end office and retail developments.

A member of the Jardine Group, it co-developed One Raffles Quay (ORQ) and the Marina Bay Financial Centre (MBFC) nearby. It owns a one-third stake in both of ORQ’s office towers and all three office towers in MBFC.

The Central Boulevard site is adjacent to ORQ and close to MBFC and some Malaysian analysts are upbeat about the direct linkages that can be established between these developments and the future project.

Of course, Hongkong Land could have waited for the Singapore government to unveil new office sites in Marina Bay or elsewhere in the CBD and then bid for them.

But there’s no certainty that it would clinch such a site or sites, especially given the fierce bidding temperament seen at state tenders fanned by strong foreign participation in recent months. Better to have the certainty of having a stake in an existing site and hopefully ride on an office rental upcycle.

After all, what do they say about a bird in the hand?

Adapted from: The Business Times, 29 June 2017