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SCMP Reporter

FOR OBSERVERS OF the commercial property market in Singapore, events in the city-state have a familiar feel to them at the moment.

Five years ago the initial development of what is known as the New Downtown - a vast central business district set to be built on reclaimed land - was blown off course by the regional financial crisis.

Now a renewed economic slowdown that may push Singapore into a double-dip recession is likely to derail the project's timetable once again.

The suggestion that history is about to repeat itself came earlier this month in a speech from National Development Minister Mah Bow Tan.

Addressing an industry dinner, Mr Mah said the fragile recovery from last year's recession coupled with storm clouds on the economic horizon could force a land-sales programme rethink.

In particular, there were question marks over the release of a huge, third New Downtown plot, which had been slated for sale in the first half of next year.

'The economic situation is unpredictable. That is why we will proceed with caution. The Urban Redevelopment Authority is now reviewing the 2003 government land sales programme, which we will announce by the end of the year,' Mr Mah said.

'We will monitor the situation closely and decide when is the best time to release the site. We may or may not release the site in the first half of 2003,' he said.

Given that strongest of hints, developers in the city-state - which had lobbied for a delay amid weakening market conditions - now expect the New Downtown to come together rather more slowly than had been planned.

Two plots have so far been taken up. The first, abutting the present CBD, was bought last year for S$462 million (about HK$2.03 billion) by a consortium comprising Hong Kong's Cheung Kong (Holdings) and Hongkong Land Holdings, plus local associate Keppel Land.

Then in May this year, a second, smaller site was off-loaded to local player City Developments.

But Mr Mah and his cabinet colleagues are right to be cautious about the next step, even if that translates into a second hiatus.

Five days after the minister's remarks, Singapore's official gross domestic product growth forecast for this year was cut to between 2 and 2.5 per cent.

'We will not rule out the possibility of a double-dip recession . . .' Trade and Industry Ministry economist Friedrich Wu said on Monday.

In such circumstances, persuading prospective anchor tenants to commit to taking vast amounts of new space - even five or six years down the line - is almost impossible.

Moreover, the market for commercial space remains extremely weak at present - hardly the best of times for launching a sale that would in time add more than four million square feet of grade-A office space. That equates to about 5.5 per cent of the present stock.

'Despite the positive economic growth in the second quarter, the office market has yet to show signs of a rebound,' property agent DTZ said in its latest quarterly survey this week. Its study noted many landlords had been forced to trim their asking prices to fill vacant floors; occupancy levels were dipping and sentiment was 'subdued'.

There was an equally cautious message from Colliers International in its most recent market assessment, which also came this week.

'On the back of low business confidence, weak market conditions persist for most sectors in the third quarter,' Colliers said. 'This has had a rippling effect through the ancillary sectors, resulting in general poor demand for office space. Substantial decline in space requirements stemmed predominantly from the lack of demand and businesses downsizing.'

Occupancy was estimated at 85.2 per cent in the July to September period, down from 86 per cent in the preceding quarter and close to the lows seen at the tail-end of the regional crisis in 1998 and 1999.

Colliers also noted that demand for fresh office space was tightly correlated with a country's growth rate.

When Singapore's economy underwent the drastic slowdown from 10 per cent GDP expansion in 2000 to a 2 per cent contraction last year, demand for office space wilted by 3.3 million square feet, it said.

But notwithstanding the latest hitch no one doubts that the New Downtown - complete with its 'garden-city image' - will eventually come to fruition.

Before Mr Mah pointed to the current rethink, he ran through the over-arching logic of promoting the ambitious scheme at all.

'The government sees the business and financial services sector to be a key driver of the economy in the future. Well-established financial centres such as New York, London and Tokyo already have state-of-the-art developments that were purpose-built for very large financial institutions,' Mr Mah said. 'Other Asian cities, like Hong Kong and Shanghai, have started rolling out similar projects to attract financial institutions to their cities.

'The race is on to become one of the key financial centres in our time-zone.'

But that race, it seems, is going to a very long one indeed.



Weak economy may stall new CBD project