ARA rides the Robinson Road improvement
Jul 16
The revitalization of the CBD is happening, whether you agree with the covid approach. It is most evident along Robinson Road. Office buildings along the section between Boon Tat Street & McCallum Street have seen ownership changes, refurbishments, or redevelopment.
According to the One Bernam condo review bid price of $440.9 million, the breakeven price for One Bernam is estimated to be approximately $2,100 psf and a selling price of about $2,430 psf taking into consideration a 15% profit margin.
Stephen Tang, head, value-add/opportunistic property, ARA Private Funds, ARA Asset Management, says that Robinson Road is the center of the 'golden triangular' bounded Raffles Place Marina Bay, Tanjong Pagar precincts. He believes that the CBD's centre will shift towards Robinson Road at the middle.
This is what attracted ARA to the Robinson Road area, along with other compelling factors such as Tanjong Pagar's rejuvenation, redevelopment of nearby buildings, and proximity to four MRT lines.
ARA Real Estate Partners Asia II (a value-add fund that falls under ARA Asset Management) paid $340 million to purchase the Robinson Centre at 61 Robinson Road. This was in September 2019. ARA began asset enhancement initiatives (AEIs) in September 2019. These are expected to be completed by the second half this year.
Robinson Point is located at 39 Robinson Road, and Afro-Asia I-Mark Building. Tuan Sing Holdings, a Singapore-listed realty group, sold Robinson Point last November for $500 million. Viva Land Investment & Development Holdings, a Vietnamese property group, is the buyer. The Afro-Asia i-Mark Building, a $320m redevelopment of the Afro-Asia Building that was owned by the Tan family of Afro-Asia Shipping Co. It is also home to the Japanese construction and real-estate group Shimizu Corp. The building was completed 2Q2021, and 70% of its occupants have leased it to date.
Similar changes were also seen on the block of Robinson Road between McCallum Street & Maxwell Road. The $1 billion redevelopment project of the former CPF Building, CapitaLand is now 79 Robinson Road. Gaw Capital Partners bought 77 Robinson in a joint venture in 2019 for $710 million. Sun Venture purchased the adjacent 71 Robinson Road from Commerz Bank for $655 million in that same year.
Directly opposite 61 Robinson Road, is a 12-storey office block at 108 Robinson Road. It was sold to PGIM Real estate, the real-estate investment business of US global manager PGIM, for $143million in April.
"Many of these buildings along Robinson Road were picked up by investors or those looking for redevelopment opportunities," said Shaun Poh (head of capital markets at Cushman & Wakefield), who over the past decade has helped to broker the sale of many commercial buildings along Robinson Road.
Recent sales of Maxwell House along Maxwell Road, and exclusive due diligence done by TE Capital Partners at PIL Building, Cecil Street, have encouraged more owners to explore the potential for their buildings, whether it be for redevelopment, asset enhancements, or a divestment. Poh is currently working with several of these asset owners on both Robinson Road as well as Cecil Street.
Poh observes that commercial buildings in the CBD are attracting private equity investors, family offices and property funds. They also attract residential property developers who are looking for redevelopment opportunities through the CBD Incentive scheme and other similar schemes. VTB Building was the last commercial building to be converted into a residential block on Robinson Road. It was purchased in 2009 and transformed into the Robinson Suites, which is a 167-unit condominium. The sale was facilitated by Poh.
Robert Cheng, the founder and principal of Brewin Design Office, noted that as some of the buildings are sold, the new owners will see an opportunity to make improvements through AEI. He also notes that ARA worked closely with Brewin on the 61 Robinson renovation. I see Robinson Road getting a new lease of life."
"Higher-grade office building"
The original 20-story office building at 61 Robinson was built by GuocoLand, the former First Capital Corp. Tang, from ARA, says that the building is well-built. The floorplates have a ceiling height of 3.5m, and floor-to–ceiling windows. He says that these attributes make 61 Robinson stand out even among newer office buildings.
The floorplans for offices at 61 Robinson are 7,000 to 9,000 sq ft. Tang says that the building's appeal lies in its floorplates. "Floorplates below 10,000 sq ft would be suitable for tenants with moderate requirements and would appreciate having a prominent presence at a unique, well-appointed office building." These discerning tenants could include companies in the asset and wealth management, financial service, and media industries.
ARA remodeled 61 Robinson as part of its overall AEI. Tang says, "In a post Covid world, we expect office space to matter even more to companies’ culture and identity, instead of just being a place to get work done."
Property consultants support his view. According to Corporate Locations' 3Q2021 market report, which was published July 12, "Despite Covid-19 restrictions, concerns over the economy," multinationals continue to take a medium to long-term view for future development and plan ahead. The need to find new space for displaced tenants of AXA Tower or Fuji Xerox Towers boosted leasing activity. Corporate Locations says that many people are taking advantage of the opportunity to upgrade their space to better quality.
C&W's July 5 report states that CBD Grade A rental growth improved in 2Q2021, after five quarters of decline. The rents increased 0.5% q/o-q to $9.60 per month in 2Q2021, which suggests a possible turnaround in the rents. Prime Grade-A office buildings were the driving force behind rental growth as tenants took a leap to quality. C&W's CBD basket of Grade A office properties shows that prime Grade A rents increased by 1.0% in 2Q2021, while nonprime Grade A office rents rose slightly by 0.1% in the same quarter.
"A touch of hospitality"
ARA wanted to "infuse a touch hospitality" when repositioning 61 Robinson in a more high-end office building. ARA's Tang says the revamped ground floor reception will feel more like a boutique hotel and offer an experience that is unlike any other office building in Singapore. The APM property management arm ARA will continue to provide a hospitality-inspired occupier experience, including concierge and community management services.
The main lobby will contain 3,700 square feet of street-fronting retail space and F&B space. To cater to lifestyle, wellness, and medical concepts, a new "destination-oriented", retail space of 8,000-10000 sq ft has been built. Additional amenities include a ground-floor end-of-trip facility and shower facilities on each office floor.
The AEI at 61 Robinson goes beyond a simple facelift and upgrading of the lobby and common areas. Upgrades will be made to the mechanical and electrical (M&E), as well as air-conditioning, mechanical ventilation (ACMV), systems. Tang says that in addition to improving energy efficiency, they will also install UV-C light filters on all office floors to improve air quality for all building occupants. Based on the planned updates, we were awarded the BCA Green Mark Gold rating because of our strong focus on sustainability.
The office floors at 61 Robinson were occupied by current tenants, who were not affected by the ongoing works. Tang adds that "we anticipate certain tenants will naturally leave the building to make room for other tenants."
The renovations have naturally led to an increase in asking rents at 61 Robinson from $9 psf before the overhaul to $10.50 psf now, according to Darren Ng (director of Corporate Locations).
Tang, ARA's director of operations, says that 61 Robinson is a proud part of the CBD's revitalization. It offers unique hospitality-inspired office space and exciting new retail and lifestyle opportunities in the CBD. "61 Robinson is a great example of how to unlock new value from old buildings in the CBD by executing an asset enhancement exercise that is more environmentally-sustainable and less disruptive than a complete redevelopment.
Restored focus on office properties
Steven Ming, co-founder and managing partner of Sakal Real Estate Partners, said that there were concerns about structural shifts in office space use in the wake of the pandemic. He says that despite the emergence of shadow space, there has been a steady increase in office space filled with new market tenants over the past six months. This trend, together with delayed completion of new office plans and supply withdrawals due to redevelopments, has made the outlook for office markets promising."
Ming believes that there is a "big wall of capital available to be used in real estate; office properties are the focus".
CBRE's Southeast Asia director Catherine He says that the CBD Incentive scheme and Strategic Development Incentive were introduced in 2019 to encourage the redevelopment and development of older office buildings into mixed use projects. Office transaction values have increased from 6.6% of investment sales to 24.2% in 1Q2021, since the announcement of these programs. "This could be due to the expected rental recovery and redevelopment potential for some major assets."
CBRE says that the resurgence of office sales is a sign of Singapore's stability and "safe haven", which has attracted global companies to establish a base in Singapore. This supports office space demand and gives investors long-term confidence in the local office sector, says CBRE.
ARA is a good example of such an investor. Tang says, "We continue to see and are exploring similar opportunities within the Singapore CBD, where there is potential to add value to existing assets through thoughtful AEIs."