Orchard Road rejuvenation gets shot in the arm from Delfi Orchard sale (2024)

SINGAPORE – Rejuvenation efforts along the Orchard Road area got a shot in the arm with the $439 million sale of Delfi Orchard to City Developments (CDL). Analysts say this could pick up pace as the recovery in Singapore’s tourism sector gains momentum and several major redevelopment projects in the prime retail belt get under way.

With CDL considering tapping the Urban Redevelopment Authority’s (URA)Strategic Development Incentive (SDI) scheme, there is growing speculation over whether Delfi may be redeveloped along with Orchard Hotel and Claymore Connect – which CDL indirectly owns under CDL Hospitality Trusts.

Ms Catherine He,ColliersSingapore’s head of research, noted that Orchard Hotel and Claymore Connect are located just behind Delfi. Given that the SDI scheme requires a minimum of two adjacent sites, among other conditions, these properties could be collectively redeveloped to tap the scheme for bonus gross floor area (GFA), she said.

Tapping the SDI will allow CDL to unlock the full potential of Delfi, a prime freehold asset, and ride on other redevelopment projects in the vicinity, she added.

To date, the SDI scheme – which was introduced in 2019 to encourage the redevelopment of older buildings into more productive mixed-use developments – has received nine applications, of which six have been supported, said URA. Under the SDI scheme, developers can increase their GFA if they have proposals that transform and rejuvenate the precinct.

Across from Delfi, hotelier Ong Beng Seng’s Hotel Properties (HPL) got the green light in 2023 to redevelop three buildings under the scheme – vocoOrchardSingapore hotel, Forum The Shopping Mall and HPL House – into a mega mixed-use project with a hotel, residential units, and retail and office space. It is also planning a six-storey podium with a rooftop garden, a performance theatre and a basem*nt carpark.

Should CDL redevelop its properties, its project and HPL’s will likely have to be coordinated to ensure there is not too much overlap, and to maximise their spaces and potential, Ms He said.

Prior to Delfi, the last successful collective sale in the Orchard area was MingArcade, which sold for $172 million in December 2022, or $3,125 per square foot per plot ratio (psf ppr), whileTanglinShoppingCentre was sold in February 2022 for $868 million or $2,769 psf ppr.

“Together, these redevelopments could transform this relatively sleepy and eclectic stretch ofOrchardRoadinto a more vibrant, energetic destination,” Ms He said.

ProfessorSingTienFoo, provost’s chair professor of real estate at NUS Business School, believes that redevelopment is critical as this stretch “has lost some shine” due to competition from newer developments near IonOrchard, Wisma Atria and Ngee Ann City.

Mr KaramjitSingh, chief executive officer at property consultancy and investment sales specialistDelasa, believes CDL should be able to qualify for the redevelopment of Delfi, Orchard Hotel and Claymore Connect under the scheme.

He said the acquisition of Delfi helps CDL “complete the missing piece of the puzzle” for an SDI scheme redevelopment, and would give them an “enlarged frontage” along Orchard Road.

He noted that while CDL also owns Palais Renaissance, it is not directly adjacent to the three buildings, andhence would likelynot qualify for SDI enhancements.

CDL has already successfully tapped the scheme – it received written approval in March 2024 to redevelop the site of the former Central Square and Central Mall in Clarke Quay into Union Square, a mixed-use development with a hotel, office and retail space, and a 366-unit condominium.

But some believe the redevelopment of Orchard Hotel and Claymore Connect may not happen in the near term. “Orchard Hotel just completed an asset enhancement initiative in 2019 and the hotel market is performing well. Redevelopment would mean a loss of income over the redevelopment period,” a market observer said.

If rejuvenation activity picks up with Delfi’s sale, this may spur theneighbouring OrchardTowers to take another stab at a collective sale after its attempt failed in 2023 as it did not secure the requisite 80 per cent mandate, analysts said.

Real estate consultancy Cistri’s regional director Jack Backennoted that “the Government has limited levers to pull when it comes toOrchardRoadas many existing developments are in private hands, and redevelopment is subject to market cycles”.

He said the fact thatsome SDI applications are being turned down for not being sufficiently transformative suggests that URA is taking implementation of its strategy seriously. One unsuccessful application was by Glory Property Developments, which scuppered a mega $910 million deal to sell Far East Shopping Centreto Chinese billionaire Du Shuanghua.

Why Far East Shopping Centre proposal was rejected

In January this year, URA rejected a redevelopment proposal by Glory, a company linked to Mr Du’s Bright Ruby Resources. The authority said the proposal did not fulfil the criteria for the SDI scheme as it constitutes only a single development site.

Another condition was for the buyer to partner with owners of neighbouring properties to submit comprehensive redevelopment proposals.

MrEdwinLoo, Cistri’s associate director (economics and property), noted that Far East Shopping Centre is bordered by the AngulliaPark carpark, which leaves integration with voco Orchard as the only immediate way to meet this requirement.

Industry observers noted that URA had approved HPL’s redevelopment proposal in August 2023, a month before the deal to sell FarEastShoppingCentreto Mr Du was struck. For a joint redevelopment proposal between Glory and HPL to take place, “HPL would probably have had to negotiate commercial terms with Glory, redesign their proposal and submit a fresh application under the SDI scheme to URA”, a source familiar with the deal said, weighing in on why such a tie-up did not happen.

HPL did not respond to queries on its redevelopment plans and whether Glory had approached it for a joint-venture redevelopment.

URA said it will consider granting exemptions if the proposed redevelopment has “a positive impact beyond the confines of a single site, and will contribute to the rejuvenation of the larger street block or precinct”. But Glory’s proposal did not meet any of these criteria, it added.

Meanwhile, the owners of the 999-year leasehold property in Orchard Roadhave reportedly received a new offer of under $900 million, after a second tender closed on May 2 without bids, but marketing agent CBRE declined to confirm the offer price and buyer’s identity, according to a Business Times report.

CBRE did not respond to queries about the new offer.

Green shoots amid risks

Some analysts flag higher development, construction and financing costs as a hurdle to large-scale redevelopment in the prime retail belt.

Redevelopment is a highly risky activity as developers are sacrificing current rental income for an uncertain outcome several years later, Mr Loo said.

“Historically, about a third of retail sales inOrchardRoadcame from tourists. As we are not yet back to pre-pandemic tourist numbers, it is unsurprising developers are being cautious,” he added.

But there are green shoots sprouting.

Since Singapore’s reopening in 2022, Orchard prime area retail rents have improved and could recover to pre-pandemic levels by the end of 2024, said Mr WongXianYang,Cushman& Wakefield’s head of research for Singapore and South-east Asia.

With Singapore’s tourist arrivals potentially reaching 16.5 million in 2024, or about 86 per cent of pre-pandemic levels, this bodes well for Orchard’s retail rents, he added.

Mr Backen noted that OrchardRoad’s position has been eroded “by the necessary growth in suburban malls”, which are designed to serve smaller areas. But he remains optimistic about its prospects, saying “none of the suburban retail precincts have the depth and scale offered” by the shopping belt.

A rapid roll-out of at least 10 hotel projects along Orchard Road since 2021 should attract more footfall and tourists, and in turn boost retail spending, analysts said.

These include Singapore Edition and Artyzen Singapore, two new-to-market brands that opened in November 2023, and the renovated Conrad Singapore Orchard – the former Regent Singapore – in December. All three are in Cuscaden Road.

Other redevelopment initiatives include the first major revamp since 2003 of The Cathay – home of the iconic Cathay Cineplex – which closed in August 2023, and is expected to reopen in late 2024.

Also under way is the redevelopment of UOL’s Faber House, an eight-storey commercial building located across theroadfrom 313@somerset.

Construction work began in April 2023 after UOL received in-principle approval under the SDI scheme in 2021 to redevelop the building into a 19-storey 200-key hotel, which will include a bank, an urban veranda, food and beverage establishments, and a rooftop bar.

“The hotel will bring a ‘City in Nature’ appeal to OrchardRoad with a cascading waterfall and cliff-like verdant vertical landscape that is carved out of the facade,” UOL said, adding that it will build a sheltered linkway from the hotel to Design Orchard at the third level, and a bridge to the old Singapore Chinese Girls’ School (SCGS) compound located behind the development.

Cistri’s Mr Loo said the SDI scheme is aimed at “pushing developers to make bold moves in driving urban transformation”.

“We understand that the conserved former SCGS at 37 Emerald Hill is currently being studied by URA and STB (Singapore Tourism Board) for future cultural and lifestyle uses,” he added.

Collective sale buzz is also growing on the other end of the shopping belt near Plaza Singapura, with the Concorde Hotel and Shopping Mall expected to be launched for sale in the second half of 2024.

The guide price has not been fixed, but is likely to be more than $800 million, said Mr Jeremy Lake, Savills Singapore’s managing director of investment sales and capital markets.

Scotts Square mall, just off Orchard Road, was put up for sale at $450 million in January, but has yet to find a buyer.

“If like Delfi, Scotts Square is also sold, this may boost the attractiveness of Far East Shopping Centre, as together with the redevelopment of Tanglin Shopping Centre, Forum, vocoOrchard and HPL House, these projects could form another zone with higher-end offerings supported by its own residential and office catchment,” Colliers’ Ms He said.

Further, a healthy recovery in retail rents in the URA central region as of the first quarter 2024, coupled with the recovery in tourism, and an anticipated retreat in interest rates, should help push this transaction across the finish line eventually, she added.