Could increasing competition on Orchard Road drive Wharf to sell Scotts Square?

Major changes could be coming to Singapore’s Orchard Road, where one of the best-known malls, Scotts Square.

Wharf Estates Singapore, formerly Wheelock Properties (WES), put up for auction the freehold retail podium in Scotts Square at a S$450,000,000 guide price.

Scotts Square, located along Scotts Road next to the Grand Hyatt Singapore, is part of a development that includes residential units. The guide price is S$3,438 a square foot per plot, based upon a GFA of 130,875 sq ft.

One cannot but be curious as to why the long-time mall owner is selling this asset.

Wheelock Properties bought the Scotts Shopping Centre in 2004 and The Ascott Singapore Serviced Residences that sat above. The building that housed Singapore’s first food court Picnic was redeveloped into Scotts Square.

Wharf Real Estate Investment Company, a Hong Kong listed company, is the ultimate owner of WES. Wharf REIC is a majority-owned by Wheelock and Company. This company is closely linked to Hong Kong’s billionaire Woo Family.

Wharf REIC doesn’t appear to be in financial distress. In its results for H1 FY2023 ending June 30, 2023 the group stated that its net debt had been the lowest in the last four years, and it held a credit rating A2 by Moody’s.

Wharf REIC had a net debt to equity ratio of around 20% as of June 2023. The group paid an interim dividend for H1 FY2023.

A good long-term investment asset

Scotts Square has a 99-year lease, which is an asset that’s becoming increasingly rare.

Wharf REIC seems to be pleased with the performance of the mall. Wharf REIC stated that Singapore has seen a boom since 2022 in its H1 FY2023.

The Orchard Road assets of Wheelock Place, Scotts Square and Scotts Square have seen a high foot traffic. Retail occupancy for the properties was 99 percent and 98 percent, respectively, at the end of June 2023.

Wharf REIC has a property portfolio that is centered on Hong Kong and includes asset classes like retail, office, and hotel. Hong Kong’s real estate market is facing a difficult outlook. Diversifying through exposure to Singapore assets would be desirable.

Wharf REIC’s presence in Singapore could grow rather than shrink. Link Real Estate Investment Trust, a Hong Kong-listed company, entered Singapore’s mall ownership market in 2023 when it purchased Jurong Point and Swing By at Thomson Plaza.

According to Savills Singapore, the marketing agent, there’s also potential to increase Scotts Square’s net rentable area and rents.

Wharf REIC will be able to enhance and reposition Scotts Square. The group’s flagship Harbour City is located in Tsim Sha Tsui – Hong Kong’s biggest shopping, dining, and entertainment center.

Wheelock Place and Scotts Square

Wharf REIC, however, may have good reasons to keep Wheelock Place while selling Scotts Square.

Orchard Road is undergoing new developments to revitalize its shopping area. The area could be benefited by the growing prosperity of the region and the increased number of visitors to Singapore. Massive investments have also been made to improve the country’s tourism offerings.

Hotel Properties Limited (HPL), owned by Ong Beng Seng, could transform its Forum The Shopping Mall, voco Orchard Singapore, and HPL House, into a massive mixed-use development with retail, office, and hotel components.

Far East Shopping Centre next to Voco Orchard Singapore could be redeveloped. A company connected to Bright Ruby Resources, a Chinese tycoon and Du Shuanghua bought it in a group sale.

Giverny Residences floor plan

The Pacific Eagle Real Estate of the Tanoto Family could redevelop Tanglin Shopping Centre nearby, which it bought as part of a collective deal.

Singtel – Z74 0% partnered with real estate group Lendlease for the redevelopment of its Comcentre headquarters.

Scotts Square is not in a good location and may be too small to compete over time.

According to the latest Wharf REIC annual report, Wheelock Place, a 99-year leasehold, has 221 800 sq ft in office space, and 243 900 sq ft in retail space, by GFA. Wheelock Place’s combined retail and office GFA is more than 3.5 times greater than Scotts Square.

Wheelock Place is located in the middle of Orchard Road, where new developments from HPL or Pacific Eagle could complement existing malls like Ion Orchard Ngee Ann City, Paragon and Ion Orchard.

Scotts Square, which is located in the Scotts Road district, may be overlooked by shoppers.

The redevelopment of the Far East Plaza, a large shopping mall, can attract shoppers to Scotts Road. As the freehold strata units in Far East Plaza are owned by different owners, it is unlikely that this mall will be redeveloped.

Wharf REIC, the Woo Family and Wheelock Properties have long-standing ties to Singapore and Orchard Road. Wheelock Properties has built landmark developments like the luxury condominium Ardmore Park.

Wharf REIC may be right to retreat from Orchard Road.

Older and smaller assets may be affected by stiffer competition as more new developments appear in the area. Orchard Road may split into two – some malls will shine, while others struggle.

Scotts Square will face a tough task as the competition around it heats up.

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