The office strata market seems to be rousing in the last half a year. Whilst the sales volume and pricing are still lower than the pre-TDSR period of 2013, activity seems to have steadily returned since 2015. At the peak of its cycle in 2012, property sales of strata-titled offices were at an all-time high with a record $2.29 billion worth of new and resale strata offices traded. This is still almost three times more than the sale transactions of $760 million in 2017.
The market then was dominated by a 70:30 ratio of investors to end users at that point in the cycle. Ready credit enticed many investors to purchase a slice of the office strata investment market. Developers, egged on by the frenzy, used the opportunity to convert whole commercial floors into strata units, parcelled out for sale to investors.
Post TDSR, coupled with the surmounting pressure on rents and supply looming, investors began to shy away from the office strata market. With credit conditions tightened, the ratio of investors to end-users shifted to the converse, with end-users now making up 70 per cent of the buyers and investors the remaining 30 per cent.
End-users see many benefits to buying a strata office unit. Family offices, small and medium-sized businesses prefer office strata units to hedge against volatility in the office rental cycles. Singapore’s office rents are increasing and will continue to do so for the next few years as the injection of supply slows. Buying an office strata unit locks in long-term operational costs. Renting an office unit subjects them to the risk of a rise in rents during the lease renewal period.
The office strata market has always been on the radar of both local and foreign investors, namely Hong Kong, Malaysians, Indonesians and those from PRC in recent years. These investors, mostly family offices, are savvy investors looking to invest in an asset that allows them to preserve their wealth. Other investors in the office strata market are typically major corporates from a diverse range of industries that span construction, financial, commodities sectors. These firms have established a footprint in Singapore over the years and find it attractive to purchase strata units to complement their regional HQs nearby, in Hong Kong for example.
We expect rents and prices of strata office units to appreciate in the next 12 to 24 months, against a limited supply, which accounts for about 14% of the total commercial office stock in Singapore. Compared to other investor markets like Hong Kong, Singapore’s office strata market has room for growth in terms of sales volume and prices. Singapore’s market is relatively open and demand and supply dynamics are balanced. Savvy overseas investors with a strong inclination to purchase real estate will continue to see value in the strata office market.
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