For over two decades, Damansara Utama’s main commercial centre, Damansara Uptown, has been a hub of activity for businesses and residents in the area. Undoubtedly, Damansara Uptown, located in Selangor’s Petaling Jaya, has been a commercial success for its developer See Hoy Chan Sdn Bhd. Though popular, as mirrored in its almost full occupancy levels, this commercial hub has been showing some wear and tear in recent years, especially in the 4-storey shops which were built in the 1980s.
The developer is not oblivious to this nor is it resting on its laurels given the emergence of competition from newer commercial-cum-retail hubs in neighbouring locales. While most developers will be hunkering down during a downturn, the company sees this as an ideal time to invest in the renewal of Damansara Uptown so as to enhance the values of properties and rentals, especially when the economy picks up.
This makes perfect sense. The group earns recurrent income from 53 of the total of 394 shops in Damansara Uptown. Apart from that, it still has a prized 12-acre tract which is now being used as a carpark.
The developer had in fact initiated the rejuvenation and transformation of Damansara Uptown, with the aim of going more upmarket. Refurbishment work on some of its 4-storey shops surrounding the Uptown office towers started last year to give the buildings a renewed, more modern feel.
Last piece of the jigsaw
A rather unsightly open-air car park sitting smack in the middle of the commercial area looks set to be the final piece of the jigsaw to bring Damansara Uptown up several notches. If things go according to plans, the 12-acre carpark will soon make way for several high-rise blocks, comprising serviced residences, serviced apartments, an office tower and a boutique retail centre, beginning next year. This second phase of development at Damansara Uptown would be in line with the developer’s target to transform it into a “gateway to business, leisure and home”.
In an interview with City & Country, See Hoy Chan executive vice president Joe Tan says the proposed high-end commercial development has always been a part of Damansara Uptown’s original master plan and the developer has been waiting for just the right time to develop it. Damansara Uptown’s emergence as a self-sustaining and popular commercial centre over the years, as well as Petaling Jaya’s growing popularity as a decentralised office location augurs well for their latest development, Tan says.
“The second phase will be more high-end. When completed, Damansara Uptown is poised to be a landmark commercial development with a prime business address encapsulating the lifestyle concept.
“When the economy recovers, say in three years’ time, there will be demand for good quality office space in PJ. This prime site is our last undeveloped parcel in Damansara Uptown and we definitely will want to start something next year. We may even set a new benchmark for offices in Petaling Jaya,” Tan adds.
However, the conservative and cash-rich developer admits its timetable for the development ultimately rests on the state of the Malaysian economy. Tan says See Hoy Chan “can afford to wait” and that its plans would be subject to the economic climate. “If the economy recovers next year, we will start on the office tower and the serviced residences because these elements will first bring in the masses,” he adds.
Construction of these two components will take about three years. While the serviced residences will be sold, the developer intends to retain the remaining components for recurring income, which would have a potential net lettable area of one million sq ft.
“Looking at the economic sentiment in today’s market, construction costs alone would amount to easily RM400 psf, so we are looking at a selling price of between RM600 and RM700 psf to make money,” says Tan.
Damansara Uptown Phase 2
Despite being more than two decades old, Damansara Uptown’s appeal has not dwindled and it is still a challenge trying to get a parking spot on weekdays. Tan sees the traffic congestion as a positive testament of Damansara Uptown’s popularity and success.
“Hot areas are always jammed, just like at SS2 and the Hartamas commercial squares. Even with newer and larger shopping centres nearby, people still frequent Damansara Uptown and despite the duplication of retailers here, business is still thriving for them,” he says, adding that shops facing the Uptown office towers are fully occupied.
There are two Starbucks outlets, two 7-11 convenience stores and various local and international banks there while night time traffic is equally heavy because of a 24-hour hawker centre.
Apart from public parking, the developer has also provided 3,500 parking bays in Damansara Uptown within a nine-storey carpark building, Uptown office basements as well as the open-air carpark.
The developer is currently busy fine-tuning the master layout for the second phase and plans to submit it to the local authorities by year-end. The issues it is studying include sufficient parking and the project’s pricing and sizes.
“Although we are not in a hurry to develop since there is almost no holding cost for us, we need to get the footprint right. With a GDV (gross development value) of about RM900 million, we plan to inject more lifestyle elements into Damansara Uptown with this project,” explains Tan.
For one, the developer plans to target young executives and families for the serviced residences, which will comprise lifestyle and family blocks. Should this project kick off next year, the developer would not discount going for the build-then-sell method, says Tan. “In three years’ time, the economic climate would have improved further and consequently, property prices will strengthen. We can even aim to sell it from RM350,000 up to RM1.5 million.”
Meanwhile, See Hoy Chan plans to offer an environmental-friendly office tower with landscaped open space and walkways, and it is targeting multinational corporations to take up space. “As most MNCs look out for the LEED certification when choosing office space, we will be ensuring that our office building meets this type of criteria. It will also have a larger floor plate than the Uptown office towers, which is about 12,000 sq ft, and will be at least one grade higher,” says Tan, adding that the developer is looking at rental rates of at least RM6 psf, inclusive of maintenance fees for its office block.
The Leadership in Energy and Environmental Design (LEED) is a third-party certification programme and benchmark for the design, construction and operation of high performance green buildings developed by the US’ Green Building Council in 2000.
Once the office block and serviced residences bring in the people, then the boutique retail centre offering would cater to the surrounding office population, Tan reasons. “Right now, the existing workday population here is about 30,000. With the new additional space, we need to increase our parking space to 8,000 bays and include buffer zones so that the traffic will be able to disperse. As long as people are willing to pay, the parking woes will be solved,” he says.
For the retail centre, the developer plans to bring in new retailers, including a supermarket player. For the serviced apartments, this offering would be comparable to the likes of PNB Darby Park and The Zone in Kuala Lumpur.
See Hoy Chan’s strategy of committing millions of ringgit to refurbish the shops which it owns appears to be paying handsome dividends. Some two years ago, the company spent over RM4 million to revamp 10 contiguous shops — formerly occupied by Fajar supermarket for 19 years — into a trendy retail shoplex called Uptown 37. Although it had to give up one shop to serve as the main lobby, it proved to be an inspired decision as rental values there have since doubled, with occupancy levels running high at 95%.
The major tenants at Uptown 37 include HSBC, Starbucks Coffee, 99 Speedmart and various eateries like Izzi’s, Umaiya and Du Viet. While the developer declined to reveal Uptown 37’s rental rates, it has a net lettable area of 52,833 sq ft.
See Hoy Chan also refurbished another 11 shops last year and plans to do up another 13 this year before moving on to its remaining 19 units next year. The refurbishment of each shop would take up to six months and cost between RM200,000 and RM300,000. The average 4-storey shop is 22ft by 75ft, with built-ups of 4,800 to 5,000 sq ft.
See Hoy Chan sees the current downturn in the property sector as the best time to invest in refurbishment works, especially to ensure the refurbished shops blend in with Uptown 37, says Tan. “As a developer, business still has to go on and in our case, our focus this year will be on the shop renovations. Once it’s done up with a more modern feel, it may offer SMEs an alternative to have an office address here,” he says.
He is optimistic that rents there will appreciate by at least 30% through the exercise to between RM2 and RM2.50 psf. However, this would still be more cost effective than having a unit in purpose-built offices on a per sq ft basis where rents are about RM4 to RM4.50 psf.
Tan says the refurbishment exercise serves as a win-win situation for the developer because it not only enhances the shops’ property values, but also boosts the image of the area. “With a more modern look, the shops will be easier to lease out, especially the upper floors. We hope this will encourage the other owners to also upgrade their properties. Right now, most of the owners are reluctant to do so because they want to see how our shops will fare in terms of rental command and capital appreciation after the exercise,” he explains.
According to the developer, the shops were launched more than two decades ago at about RM300,000 each. Today, one can hardly find any shop for sale while occupancy levels of those units facing the Uptown office towers are full. While a basic intermediate en bloc shop can easily be leased for about RM13,000, a refurbished unit can fetch at least RM16,000.
CBD Properties Sdn Bhd principal Adrian Wang, whose office is based in Damansara Uptown, says that current asking prices for en bloc intermediate shops is over RM2 million. “Those that have been refurbished by the developer which are fully tenanted can easily be worth RM2.4 million,” he adds.
See Hoy Chan also has plans to upgrade the Uptown office towers, which are more than 10 years old. Although there are four office towers in Damansara Uptown, the developer only owns a part of the three blocks. It sold one block to Lembaga Tabung Haji back in 1999 for RM400 psf while 169,582 sq ft of Uptown 5, with a total net lettable area of 284,582 sq ft, was sold on a strata basis.
For the three blocks of office towers, of varying heights between 12 and 19 floors, the developer leased out more than 500,000 sq ft to various companies including multinational corporations like Loréal, Reckitt Benckiser, Nike, Agilent Technologies and Federal Express. According to the developer, occupancy levels here are almost full at 99% with rental rates of up to RM4.50 psf, inclusive of the sinking fund. The first thing it plans to do is to upgrade the office towers’ lobbies and refurbish the internal façade to remain competitive. The developer has set aside a budget of a “few million” for this exercise.
With a track record of over 30 years in property development and projects like Damansara Utama and Damansara Jaya under its belt, See Hoy Chan’s more recent completed developments include the freehold 178-unit Sutramas condominiums in Segambut and the gated 58-unit Sierra Seputeh semidee and bungalow development in Bukit Seputeh. These projects, with a GDV of RM80 million and RM98 million respectively, have since been sold out.
This year, the developer sees the bulk of its income contribution deriving from its property investment and management activities such as carpark management and securities services. “These two segments will contribute more than 50% to our income and with the bearish market conditions, we will not be having any major launches,” Tan says.
“See Hoy Chan is a long established company which takes calculated risks but we don’t intend to pursue businesses which we are not familiar with,” he shares. However, this doesn’t mean the developer will be lying low as it believes this to be the best time to explore land acquisition opportunities. It is keeping an eye out for prime areas in the Klang Valley as Tan believes that companies with high gearing may let go of prime land at reasonable prices. However, he declined to reveal more details.
Meanwhile, the developer is also busy getting building plans out for a boutique strata bungalow development in Taman Titiwangsa. The freehold RM30 million development features only seven 3-storey homes on a less than one-acre tract. Each home in the gated community is equipped with a lift and swimming pool. An additional feature is basement parking for between five and seven cars.
According to Tan, the project’s development order has been approved and it plans to proceed with construction soon. “This is a small project and serves as our stop-gap strategy. Since the new Uptown development may only start next year, I have to keep my staff busy or else they will worry,” Tan laughs.
While the homes are valued at about RM4 million each, maintenance fees are expected to be minimal as there will be little in terms of common area. However, the developer prefers to sell it en bloc due to the limited number of homes. “There are some parties that have indicated their interest and once it’s firmed up, the buyer can have a say in the design and layout of the homes,” he adds.
On its remaining landbank, the developer still has a small freehold tract of under one acre in the high-end Persiaran Stonor condo enclave that was purchased back in 2003. As the transaction was done before the peak of property prices in the KLCC area, the developer bought it at an “attractive entry price”, Tan reveals.
This site is located opposite Glomac Bhd’s Suria Stonor development. See Hoy Chan’s offering at the site would be for high-end exclusive condos within a building limited to 20 levels and there will not be more than 99 units, says the developer. Sizes will be between 1,000 and 1,800 sq ft.
With hardly any gearing on the land, See Hoy Chan can afford to wait. “As our site’s locale is part of KLCC’s prime site, it is certainly unwise to launch it during bad times. Our plans are to launch when we can maximise returns, and we are targeting the niche high-end market,” says Tan. Currently working on the development order for the Persiaran Stonor site, he says its presence in the KLCC vicinity will be good branding for the company.
Will the developer set up a real estate investment trust (REIT)? The developer did not discount the possibility. “However, we will only consider such a possibility when the second phase of Damansara Uptown is completed. A REIT portfolio is only viable when there is a good mix of retail, offices and serviced apartment properties amounting to at least RM1 billion,” says Tan.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 755, May 18 – 24, 2009.
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