RIVAL developers with land at the Somerset MRT Station could join forces to build a mega-mall on the prime Orchard Road sites.
The project could exceed Suntec City Mall in size and would revolve around the ageing Specialists' Shopping Centre site, with at least one of the two plots on either side tacked on.
The Straits Times understands that the three developers or owners involved would consider jointly developing their blocks.
OCBC Bank, which owns Specialists' Shopping Centre, has gone part of the way by confirming that it has agreed to take a 10 per cent stake in one of the adjacent plots - the former Gluttons Square site now held by Far East Organization.
Ownership of the other site, Somerset Central, has not yet been finalised, but Australian property group Lend Lease submitted the highest bid in a state tender that closed on Wednesday. It said that if its hefty $617 million bid is successful, it may consider joining with the owners of the adjacent sites.
'It makes sense to develop the sites together and it's doable, but it's still early stages and we haven't approached anyone or been approached yet,' said Mr Ooi Eng Peng, the chief executive of Lend Lease in Asia.
The Straits Times understands that Far East is also open to the possibility of developing its site in tandem with the other two.
If the three sites are amalgamated, the land could host a retail-focused project with about 1.25 million sq ft of gross floor area (GFA). This would include Hotel Phoenix, which connects to Specialists' Shopping Centre.
This would exceed the size of other major malls like Ngee Ann City, with a GFA of about 1.19 million sq ft, and Suntec City, with one million sq ft of GFA.
Property analysts said a combined project would make better use of the land than having three different malls on adjoining sites.
It would reduce mall competition in the Somerset area and raise the efficiency of the joint project, said OCBC Investment Research analyst Winston Liew.
Efficiency for malls is calculated by dividing the development's net lettable area by its GFA. 'Simply, if you have three separate buildings, you need three separate entrances and three exits as well, and that alone would take up a lot of GFA that then becomes unusable,' Mr Liew said. 'Also, a larger development allows you greater room to play with the layout configuration, further raising efficiency.'
If the sites are jointly developed, their owners also stand to gain by being able to band together to push up rents, said Knight Frank's director of research and consultancy, Mr Nicholas Mak.
'By combining their properties, the three developers would have control over a significant supply of retail space in this area and would thus be able to influence rental in this micro-market,' he said. Given the high estimated development costs of the Gluttons Square and Somerset Central sites - close to $700 million and $900 million respectively - the malls that are built will have to charge an average monthly rent of about $17 to $20 per sq ft (psf) to achieve attractive net yields of 6 to 7 per cent, analysts said. This is well above the rents of $6 psf to $17 psf now commanded by Specialists' Shopping Centre.
News of the record bid for Somerset Central created some market euphoria for several property stocks yesterday.
City Developments, which owns Orchard Hotel and Palais Renaissance, was the star, rising 35 cents to close at $9.55.
CapitaLand, which owns the Orchard Turn site above Orchard MRT Station, was up six cents at $4.56, while Wheelock Properties, owner of Wheelock Place, closed three cents up at $1.60.
fiochan@sph.com.sg
ADDITIONAL REPORTING BY JOYCE TEO
