MARCH 2012 Bright Spot in Singapore Property Market: Stratatitled THE PAST

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1 BRIGHT COLLIERS SPOT INTERNATIONAL SINGAPORE PROPERTY WHITE PAPER MARKET: STRATA-TITLED OFFICE WHITE PAPER MARCH 2012 MARCH 2012 Bright Spot in Singapore Property Market: Stratatitled Office The strata-titled office property market is recently abuzz with renewed interest with an increase in the number of launches and sales activities despite the looming economic uncertainties. This paper aims to track the development of this market segment that leads to this buzz. THE PAST Strata-titled offices originated in Singapore in the late 1960s when the Urban Redevelopment Authority (URA) sold commercial land parcels to developers who built and sold office units, amongst others, on a strata-titled basis. Over time, developing real estate for investment income gained traction and office developments were increasingly built and held for rental rather than strata-titled sales. New supply of strata-titled offices that emerged after the 1970s mostly took the form of smallscaled developments or formed a minor component in a mixed-use development. P. 1

2 Mid- to large-scale strata-titled developments were far and few in between with the more significant ones being Suntec City in the Marina Centre locality, which offered more than 1.4 million sq ft of strata-titled office space, as well as the in the Clarke Quay locality, which offered 227 small-office-home-office strata units within the integrated development - The Central. THE PRESENT The preference for developing commercial real estate for rental income had led to today s small stock of strata-titled offices. While official statistics on this market segment is unavailable, Colliers International estimates the stock of strata-titled offices in Singapore to be million sq ft, which is 14.2 per cent of the total islandwide office stock as of 4Q 2011 and approximately 57.1 per cent of the stock lies in the Central Business District (CBD), which encompasses the Downtown Core and Orchard Road Planning Areas. In fact, 99.3 per cent of islandwide s strata-titled office space is located within the Central Region. Geographical Distribution of Strata-Titled Office Space in Singapore (as of February 2012) Fringe (Outside Central Area, within Central Region) 20.7% Downtown Core CBD 57.1% 48.0% Rest of Central Area 21.4% Orchard Planning Area 9.1% Outside Central Region 0.7% Note: The numbers may not add up to 100% due to rounding off. Source: Colliers International Singapore Research P. 2

3 Interestingly, strata-titled offices were generally observed to enjoy higher-than-market occupancy rates. Colliers International estimates the average occupancy 1 levels of strata-titled offices in the Central Region and the CBD stood at 91.7 per cent and 92.9 per cent, respectively, as of February 2012, outperforming the 88.2 per cent and 86.6 per cent occupancy rates recorded for the wider market encompassing non-strata offices, according to URA s latest 4Q 2011 figures. ESTIMATED OCCUPANCY RATE OF STRATA-TITLED OFFICE SPACE BY LOCATIONS Submarket Central Region CBD Strata-Titled Office Space (as of February 2012) 91.7% 92.9% All Types of Office Space (as of 4Q 2011) 88.2% 86.6% Source: URA/Colliers International The investment potential inherent in a market characterised by limited stock, particularly that of quality and modern ones, and high occupancy rates had investors attention drawn to the strata-titled office segment, particularly in 2011 when most have started to look beyond the poor performing stock market and the heavily regulated private residential market. As of 4Q 2011, prime strata-titled offices commanded an average gross rental yield of 4-6 per cent. The attractive yield was a further bait in an environment offering record low interest rate for savings deposits. The attractiveness of strata-titled offices as an investment option is also enhanced by the absence of taxes such as the Seller s Stamp Duty and Additional Buyer s Stamp Duty that were imposed on the private residential market. Businesses, too, were exploring purchasing strata office units in a landscape of volatile office leasing costs in the country. There were yet buyers who were acquiring units in aging stratatitled office developments in hope of reaping a windfall from the collective sales of these buildings in the near future. All these culminated in an active office strata sales market despite heighten uncertainties arising from the debt crisis in the Eurozone that caused overall investment sentiments to turn cautious in According to the URA s Real Estate Information System, a total of 481 caveats were lodged for strata-titled offices in 2011, an increase of 2.3 per cent year-on-year, out of which, 416 caveats were lodged for completed strata units, up 2 per cent from the number in P. 3

4 The table below shows the most popular and actively transacted completed strata-titled office developments in ranked in terms of transaction volume. POPULAR STRATA OFFICE DEVELOPMENTS IN THE SECONDARY MARKET IN 2011 Development Location Tenure Size (sq ft) International Plaza The Central Transacted Price Range (S$) Central Area (Inclusive of CBD) Low High Anson Road 99 yrs wef ,810 $285,000 $5,323,629 Eu Tong Sen Street 99 yrs wef ,765 $1,065,420 $4,635,750 The Adelphi Coleman Street 999 yrs wef ,762 $876,150 $17,800,000 People s Park Centre Suntec City Tower Golden Mile Complex Upper Cross Street Temasek Boulevard 99 yrs wef ,378 $303,116 $1,433, yrs wef ,336 12,023 $6,026,880 $28,768,320 City Fringe Low High Beach Road 99 yrs wef ,399 $120,000 $1,500,000 The Plaza Beach Road 99 yrs wef ,476 $467,600 $3,243,191 The Modules Joo Chiat Road Freehold $470,000 $1,080,000 Eastgate Golden Mile Tower East Coast Road Freehold 1,130 1,249 $1,390,000 $1,550,000 Beach Road 99 yrs wef $331,500 $475,000 Source: URA/Colliers International (info gathered as of February 2012) To a large extent, the buoyant strata-titled office sales market was also underpinned by the hype created from a fresh wave of project launches offering small-format offices. Costeffective unit sizes have helped to contain the total price quantum and minimise capital-risk exposure for purchasers in an uncertain investment environment. A majority of the recently launched units in the City Fringe were sold at below $1 million, whilst projects in the CBD were launched at prices estimated at between $1.3 million and $3.6 million. Additionally, many of the new projects boast value-added features and lifestyle amenities that cater to small businesses looking for flexibility in space configuration as well as usage and allow occupants the full advantage of a quick start-up. For instance, PS 100, which is part of an integrated office-hotel development located on Peck Seah Street, will offer 100 units of small format offices, each measuring 420 sq ft to 517 sq ft. All the units will have a lofty ceiling height of 5m (about 16.4 ft), a platform P. 4

5 measuring 54 sq ft, kitchenette and private attached toilet. In addition, users can utilise the business facilities offered at the hotel, such as professional concierge services, meeting rooms and business centre at a nominal fee. Another new strata-titled office development, Oxley Tower on Robinson Road is a 32-storey commercial development that boasts a three-storey retail podium fronting Robinson Road. The office units will be sized at 950 sq ft to 1,200 sq ft, and every unit will have private lift access, private washroom and a 16.4 ft ceiling height. Recreational facilities such as a swimming pool, gymnasium and a garden deck will also be incorporated into the development. Such lifestyle development concepts were almost non-existent in older strata office properties, which merely provide no-frills business space. Buyers have responded to these new offerings by snapping up units in recently launched developments. Projects such as PS100, Icon@Changi and Loft@Nathan were fully sold while launched units at Robinson Square and Paya Lebar Square were about 78 per cent and 85 per cent sold, respectively. Buyers of units at these projects are purported to include a mixture of individual investors as well as entrepreneurs and businessmen from various industries such as shipping and logistics, investment, business consultancy and professional services. THE FUTURE This new wave of development coming on the back of pent-up demand and limited quality stock is set to boost the existing stock of strata-titled office space by some 11.1 per cent. According to official statistics (as of 4Q 2011), Colliers International estimates some 1.23 million sq ft of strata office space to materialise between 2012 and Of significance, approximately 621,000 sq ft or about 51.5 per cent of this potential supply lies within the City Fringe, exceeding the 609,000 sq ft that will come on stream in the Central Area. This is in contrast to the current geographical spread whereby a good 77.8 per cent of existing stock is located in the Central Area. Given the government s plans to decentralise economic activities from the CBD, an increasing amount of new strata-titled office space could sprout in the city fringe areas, especially in the Paya Lebar Central and Kallang Riverside new growth regions. Accordingly, the locational distribution of strata-titled office space could gravitate towards the city fringe in time to come, potentially increasing the options available in terms of location and budget to prospective buyers. P. 5

6 EXAMPLES OF MAJOR KNOWN UPCOMING SUPPLY OF STRATA-TITLED OFFICE DEVELOPMENTS Development Location Developer Type of Development Estimated Office Strata Area (sq ft) Expected Year of Completion Estimated Office Strata Area Central Area (Inclusive of CBD) Low High PS 100 Peck Seah Street Far East Organization Mixed Office/ Hotel 60, $1.3 million $1.6 million EON Shenton Index Mistri Road/ Shenton Way Robinson Road/ Cecil Street Roxy Pacific Holdings Ltd Far East Organization Oxley Tower Robinson Road Oxley Holdings Ltd Robinson Square Robinson Road Oxley Holdings Ltd Soho Life Joo Chiat Road World Class Land CT Hub 2 Icon@Changi Paya Lebar Square Kallang Avenue Changi Road Paya Lebar Road/ Eunos Road Chiu Teng Enterprises Pte Ltd Fragrance Realty Pte Ltd Low Keng Huat, Guthrie Properties & Sun Venture WiS@Changi Changi Road Roxy Pacific Holdings Centropod@Changi Changi Road Roxy Pacific Holdings Loft@Nathan River Valley Road Oxley Holdings Ltd Mixed / Residential (Office) 102, n.a. n.a. 296, n.a. n.a. 111, n.a. n.a. 38, $3.3 million $3.6 million City Fringe Low High Mixed Industrial/ Mixed / Residential (Office & Shops) Mixed Residential/ 29, $375,000 $872,000 48, n.a. n.a. 20, $480,000 $755, , $760,000 $14.5 million 37, $723,000 $798,000 50, $733,000 $1.3 million 4, $818,000 $978,000 n.a. denotes not available Source: Colliers International (info gathered as of February 2012) The strata-titled office market, with its changing landscape, indeed offers exciting investment opportunities and is a bright spot amid a property market that has turned cautious amid uncertain macro-economic environment. 1 As official statistics on the occupancy of strata-titled office developments in Singapore are not available, Colliers International has identified and inspected a basket of major strata office developments spread across different locations and building grades to gauge the overall occupancy rate in February P. 6

7 Notes: AUTHORS: Michelle Tee Assistant Manager Koh Siok Hui Senior Research Analyst COLLIERS INTERNATIONAL CONSULTANCY & VALUATION (SINGAPORE) PTE LTD 1 Raffles Place #45-00 One Raffles Place Singapore TEL FAX RCB NO E This report and other research materials may be found on our website at Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, express or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s) All rights reserved. P. 7