A PRIME transitional office site in Newton attracted eight bids by the close of its tender yesterday, a clear reminder that demand for office space remains high.

The surprise top bidder was not the usual developer, but brokerage UOB Kay Hian. It offered $34 million, or $242.5 per sq ft (psf) of gross floor area, said the Urban Redevelopment Authority.

This was 16.5 per cent higher than the second bid, an offer of $29.2 million, or $208 psf, from Sun Venture Investments.

Property experts said UOB Kay Hian could be relocating some of its back-room operations from the financial district or expanding its office space.

Other bidders for the tender launched on Feb 28 include Scotts Development, Hersing Corporation and Sim Lian Land.

Mezzo Development trailed the field with a bid of $11.9 million, or $85 psf, for the 93,461 sq ft site.

Market watchers said the 15-year leasehold plot's attractive location next to the Newton MRT station fuelled the bullish bidding.

Mr Nicholas Mak, director of research and consultancy at Knight Frank, said tight office supply and strong demand have sustained the growth in rentals.

For the first quarter this year, average Grade A office rentals in Raffles Place reached $17.63 psf per month - much higher compared with monthly gross rentals of $6 psf to $8 psf in the Scotts Road area.

Companies leasing the Newton site, which can yield a maximum gross floor area of about 13,000sq m, could reduce their occupancy costs, yet still enjoy a strategic location, said Mr Mak.

He noted that the top bid is the highest average price paid for a transitional office site since the initiative was launched in July last year to address supply concerns.

Earlier this year, the Government chose not to award the tender for a similar office site in Aljunied because the only bid was too low. Mezzo Development had offered $7.8 million, or $38.35 psf.

Mr Ku Swee Yong, Savills Singapore's director of marketing and business development, said that if UOB Kay Hian relocates to the Newton site, it could gain by renting out its offices at UOB Plaza.

But Mr Mak reckons that the site will be used for expansion purposes. He added that the site could be merged with an adjacent land parcel, also a transitional office site. The tender for this plot closes on April 30.

As a result, the bidding for this site is expected to be relatively less aggressive.

jcheam@sph.com.sg