The development's 23-storey Tower 1 is expected to receive Temporary Occupation Permit around July, to be followed a couple of months later by the 21-storey Tower 2.
Talk in the market is that the first few office leases have been inked. Neptune Orient Lines is believed to have signed up for just over 100,000 sq ft. BT understands that the Singapore Exchange (SGX) too has signed a lease for 85,000 sq ft. The bourse operator is believed to be planning a front/back-end split and is expected to keep its front office operations at SGX Centre in Shenton Way.
Next in line at The Metropolis could be oil giant Shell, believed to be for a 120,000 sq ft lease. Also thought to be seriously looking at becoming a tenant in the development is Procter & Gamble, which may take around 200,000 sq ft or more.
For sure, gym operator Fitness First has signed a lease at The Metropolis. Ho Bee itself will move its offices from Tannery Road to its new Buona Vista development.
In all, about 60 per cent of The Metropolis' net lettable space of 1.05 million sq ft is thought to be currently under negotiations.
Pre-leasing activity for new office developments in Singapore is generally slow at the moment - not surprising given that occupiers such as international banks and financial institutions are more careful about relocating to new buildings to avoid incurring major expenditure amid the uncertain business environment. There is also ample supply of office space in the island, and with rents not predicted to shoot up anytime soon, this tends to be a drag on pre-leasing. So it remains to be seen just when The Metropolis will be fully tenanted.
However, while the supply-demand dynamics of the Singapore office leasing market may be out of Ho Bee's control, one factor clearly in the group's favour is its low development cost for The Metropolis. The group clinched the site at a state tender in 2010 for $410.99 million (or about $342 per square foot per plot ratio). Because Ho Bee managed to lock in a relatively low construction cost for the project, its breakeven could be as low as $750-800 psf.
Big occupiers in The Metropolis can probably expect to pay close to $6 psf in monthly rents - cheaper than around $9 psf in the financial district. Based on the breakeven cost of about $800 psf, Ho Bee's net yield (when the building is fully leased) would be around 7 per cent.
Each year, the development should generate about $75-80 million in rental and carpark revenue (The Metropolis will have some 490 car park lots), going by a back-of-the-envelope calculation. That will result in a regular stream of recurring income which should help the group smooth the ups and downs in its residential property development business.
No doubt Ho Bee will also benefit from a one-time revaluation gain at the end of this year from The Metropolis, assuming office values remain resilient. Right now, a new Grade A-specification office development in that location could be valued at around $1,600-1,800 psf on a whole-building basis, by some estimates. Based on Ho Bee's breakeven cost of around $800 psf for The Metropolitan, the group stands to book a revaluation gain of some $800 million to $1 billion.
Between financial years ended Dec 31, 2007, and Dec 31, 2011, Ho Bee's net earnings have gyrated from $93.1 million to $333 million.
It is this sort of income volatility that the completion of The Metropolis will help to reduce.
On the stockmarket the counter has appreciated about 80 per cent over the past one year, double the gain of about about 40 per cent in the FTSE ST Real Estate index over the same period. The stock is now hovering around $1.90, compared with about $1.06 a year ago.
Source: Business Times –23 January 2013
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