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Bright Spot in Singapore Property Market: Strata-titled Office

Apr 04, 2012
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COLLIERS INTERNATIONAL | WHITE PAPER BRIGHT SPOT IN SINGAPORE PROPERTY 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.

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BRIGHT SPOT IN SINGAPORE PROPERTY MARKET: STRATA-TITLED OFFICE | WHITE PAPER | MARCH 2012

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 SoHo@Central 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 11.05 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% CBD 57.1% Rest of Central Area 21.4%

Downtown Core 48.0%

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

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BRIGHT SPOT IN SINGAPORE PROPERTY MARKET: STRATA-TITLED OFFICE | WHITE PAPER | MARCH 2012

Interestingly, strata-titled offices were generally observed to enjoy higher-than-market occupancy rates. Colliers International estimates the average occupancy1 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 Strata-Titled Office Space (as of February 2012) All Types of Office Space (as of 4Q 2011) Central Region 91.7% 88.2% CBD 92.9% 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 2011. 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 2010.

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BRIGHT SPOT IN SINGAPORE PROPERTY MARKET: STRATA-TITLED OFFICE | WHITE PAPER | MARCH 2012

The table below shows the most popular and actively transacted completed strata-titled office developments in 2011 - ranked in terms of transaction volume.

POPULAR STRATA OFFICE DEVELOPMENTS IN THE SECONDARY MARKET IN 2011
Development Location Tenure Size (sq ft) Transacted Price Range (S$) Low 161 ­ 3,810 581 ­ 1,765 495 ­ 8,762 344 ­ 1,378 2,336 ­ 12,023 $285,000 $1,065,420 $876,150 $303,116 $6,026,880 Low 65 ­ 1,399 334 ­ 2,476 366 ­ 840 1,130 ­ 1,249 355 - 452 $120,000 $467,600 $470,000 $1,390,000 $331,500 High $5,323,629 $4,635,750 $17,800,000 $1,433,000 $28,768,320 High $1,500,000 $3,243,191 $1,080,000 $1,550,000 $475,000

Central Area (Inclusive of CBD) International Plaza The Central The Adelphi People's Park Centre Suntec City Tower Golden Mile Complex The Plaza The Modules Eastgate Golden Mile Tower Anson Road Eu Tong Sen Street Coleman Street Upper Cross Street Temasek Boulevard 99 yrs wef 1970 99 yrs wef 2001 999 yrs wef 1828 99 yrs wef 1970 99 yrs wef 1989 City Fringe Beach Road Beach Road Joo Chiat Road East Coast Road Beach Road 99 yrs wef 1969 99 yrs wef 1968 Freehold Freehold 99 yrs wef 1969

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

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BRIGHT SPOT IN SINGAPORE PROPERTY MARKET: STRATA-TITLED OFFICE | WHITE PAPER | MARCH 2012

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 2016. 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.

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EXAMPLES OF MAJOR KNOWN UPCOMING SUPPLY OF STRATA-TITLED OFFICE DEVELOPMENTS
Development Location Developer Type of Development Estimated Office Strata Area (sq ft) 60,843 102,106 296,000 111,439 38,642 Expected Year of Completion 2013 2015 2015 2016 2016 Estimated Office Strata Area Low $1.3 million n.a. n.a. n.a. $3.3 million Low Commercial (Office/Shops) Mixed Industrial/ Commercial Mixed Commercial/ Residential Commercial (Office/Shops) Commercial (Office/Shops) Commercial (Office & Shops) Mixed Residential/ Commercial 29,785 48,857 20,000 430,000 37,889 50,547 4,790 2012 2013 2013 2014 2015 2015 2015 $375,000 n.a. $480,000 $760,000 $723,000 $733,000 $818,000 High $1.6 million n.a. n.a. n.a. $3.6 million High $872,000 n.a. $755,000 $14.5 million $798,000 $1.3 million $978,000

Central Area (Inclusive of CBD) PS 100 EON Shenton Index Oxley Tower Robinson Square Peck Seah Street Mistri Road/ Shenton Way Robinson Road/ Cecil Street Robinson Road Robinson Road Far East Organization Roxy Pacific Holdings Ltd Far East Organization Oxley Holdings Ltd Oxley Holdings Ltd City Fringe Soho Life CT Hub 2 Icon@Changi Paya Lebar Square WiS@Changi Centropod@Changi Loft@Nathan
n.a. denotes not available

Mixed Office/ Hotel Mixed Commercial/ Residential Commercial (Office) Commercial (Office/Shops) Commercial (Office/Shops)

Joo Chiat Road Kallang Avenue Changi Road Paya Lebar Road/ Eunos Road Changi Road Changi Road River Valley Road

World Class Land Chiu Teng Enterprises Pte Ltd Fragrance Realty Pte Ltd Low Keng Huat, Guthrie Properties & Sun Venture Roxy Pacific Holdings Roxy Pacific Holdings Oxley Holdings Ltd

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 2012.

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Notes:

AUTHORS: Michelle Tee Assistant Manager EMAIL michelle.tee@colliers.com Koh Siok Hui Senior Research Analyst EMAIL siok-hui.koh@colliers.com

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