Sans sleaze, next act for Orchard Towers could be redevelopment 

I AM somewhat familiar with Orchard Towers, which has a seedy reputation, as I used to regularly patronize Irish pub Muddy Murphy’s in the late 1990s and early 2000s. The pub was located at what was then called Orchard Hotel Shopping Arcade (now renamed Claymore Connect), which is a stone’s throw away from Orchard Towers.

Memories of seeing Orchard Towers from close range and at times wondering what was going on in some of the outlets there flooded back when I read the recent news that all public entertainment licences for businesses there would not be renewed as part of the government’s continued efforts to manage the law and order situation at the building. The police will not grant new public entertainment licences for Orchard Towers’ businesses, and licences for existing outlets will not be renewed beyond May 31, 2023.

I empathize with the dismay reported in the media of affected nightclub and bar operators. These operators suffered when operations were halted for about two years as Singapore battled to curb the spread of Covid, before nightlife businesses were allowed to fully reopen in April. Nightlife operators are seeing business bounce back. However, the runway for nightclubs and bars at Orchard Towers is being truncated.

Perhaps, the sleaze associated with Orchard Towers will live on even when the nightclubs and bars stop operating, as there are beauty salons, where therapists offer sex, operating at the property according to The Sunday Times.

Doubtless, the strata owners of shop lots hosting the nightclubs and bars at Orchard Towers will be concerned that if the highest and best use of the units was for nightlife activity, using the space for other purposes will be a negative economic outcome.

As it is, many malls need to reposition amid disruption caused by the growth of online shopping and changing consumption, lifestyle and entertainment preferences. According to the Urban Redevelopment Authority (URA), the median rental rate of retail space based on lease commencement in the Orchard Planning Area in Q2 2022 is down 16 per cent versus Q2 2020.

Changing the tenant mix can be far more challenging for strata-owned retail spaces than for malls owned by single owners. Also, older buildings such as Orchard Towers, which was built in the 1970s, may require substantial spending on capital expenditure.

Much co-ordination would be needed for a disparate group of owners to agree on a suitable leasing plan for a strata-owned retail building, and a spending plan on capital expenditure and branding needed to reposition the property.

Possible en bloc

Nonetheless, much of a property’s worth lies in its location. Orchard Towers sits on a freehold site with good visibility that is close-by to luxury condominiums, Ardmore Park and The Claymore.

Earlier this year, strata owners approved the collective sale of freehold land plots, with plot ratio of 4.9 and a site area of about 6,130 square metres, which house Orchard Towers’ commercial units as well as apartments and car park lots, at the reserve price of S$1.6 billion.

Listed regional real estate group Hiap Hoe - owner of 59 strata lots, of which 21 are shops and 38 are offices - would be a winner from a successful en bloc sale. Occupancy rate for Hiap Hoe’s units was 47 per cent in 2021. In its results announcement last month, Hiap Hoe said it is uncertain if the above collective sale will proceed or be completed in the next 12 months.

With the non-renewal of public entertainment licences for businesses at Orchard Towers, the impetus for some owners to divest may rise. Repositioning the asset when the nightclubs and bars stop operating will be hard work. Meanwhile, rising interest rates may add to the pain of property owners who have to service loans. While there is no pressure from the running down of the land lease, headwinds may drive some owners to be more flexible on their pricing.

Rejuvenating Orchard Road

Should Orchard Towers be sold to a single owner and subsequently redeveloped, it would add to the rejuvenation of the western-end of Orchard Road, near Tanglin. Expect a new super high-end development to emerge that targets the growing ranks of the wealthy here.

Redevelopment of Orchard Towers can complement the redevelopment of Tanglin Shopping Centre, which was successfully sold en bloc for S$868 million earlier this year to an entity of the Tanoto family.

Perhaps, Hotel Properties Limited (HPL) can add to rejuvenation efforts in the immediate vicinity by undertaking a mega development involving land plots that house the newly rebranded voco Orchard Singapore Hotel, Forum The Shopping Mall, HPL House and Four Seasons Hotel Singapore.

The timing is right to invest in rejuvenating Orchard Road assets because more super wealthy people are setting up base here as shown by the growth in family offices. Also, tourism is recovering - with its good infrastructure, public health and safety as well as its proven ability to hold major events and conventions, Singapore is attractive to more premium tourists

If a tycoon snares Orchard Towers, there will be further concentration of ownership of Orchard Road assets in a few hands and a fall in opportunities available for smaller players to own the odd office or shop lot in this prime area. As it is, the Ng family of Far East Organization, Ong Beng Seng of HPL, the Kuok family of Kuok Group, the Woo family of Wheelock, the Shaw family and Kwek Leng Beng of City Developments Limited own swathes of prime Orchard Road area real estate.

In March, the URA said commercial developments as well as the commercial components of mixed-use developments located in prominent areas and routes in Singapore’s Central Area are no longer allowed to be strata subdivided into individual units.

Generally, strata subdivided developments, due to their fragmented ownership, face challenges in maintenance and upkeep. Such developments may face difficulties in obtaining consensus to regularly maintain and/or upgrade the building, which can result in deteriorating physical condition, and in curating a good tenant mix.

Memories will be lost should the somewhat infamous Orchard Towers get redeveloped. But this may be a price worth paying as new products can emerge that better meet new live, work, and play needs, and improve Singapore’s cityscape.