A rare hotel development site in Singapore has fetched a record price, a sign that the limited supply is likely to continue pushing up prices.
Midtown Development (part of Worldwide Hotels Group) bought the Club Street Hotel site for S$562.2 million, Singapore’s Urban Redevelopment Authority (URA) announced last month. At S$2,148 per square foot, this represents a new high for hotel-zoned Government Land Sales (GLS)
“This was one of the most hotly contested hotel land sales in Singapore history,” says Calvin Li, Senior Vice President – Hotels for JLL in Singapore.
The previous record was held by Golden Wall Centre, which was sold en-bloc in late 2018 for around S$2,331 per square foot of potential gross floor area (GFA). To put this in perspective, a decade ago the Park Royal site on Pickering Street went for S$805 a square foot.
Rising prices are due to a combination of strong demand for hotels as tourism figures rise, and limited supply due to a shortage of sites available for development in the past few years, Li says.
“Since 2014 the URA followed a policy to restrict new hotel land plots,” he says. At the time, there was ample supply coming on to the market. Between 2015 and 2018, there was annual growth of 2.5 percent to 3.0 percent in overall supply, which the government judged to be sufficient, Li says.
The government also saw tightening the supply as a way of reducing reliance on low-skilled foreign labour prevalent in the hospitality industry, in a bid to boost salaries in the sector.
The policies resulted in an acute lack of centrally-located development sites at a time of rising tourism, which will continue to boost demand in the short term and push up room rates, Li says.
Several brokerages including OCBC and DBS have maintained a positive outlook for the hospitality sector over the next few years.
“This presents great opportunities for existing providers and future investors alike,” Li says. “There is growing recognition around the potential of midscale hotels, for example, which due to restricted supply are becoming more accepted, and increasingly profitable.”
More deals like the Club Street sale will continue to be rare but the Urban Redevelopment Authority of Singapore announced in mid-2018 that they would consider re-zoning of sites in certain areas in the CBD on a case-by-case basis. The opportunity to re-zone commercial sites in the CBD will allow existing investors to capitalise on the hotel market upswing.
Click to read about how the shifting hotel landscape is impacting management agreements.