The rapid transactions in Solitaire on Cecil was the most popular strata office unit transactions of 1H2023, indicating a clear sign that the market is “starved of new office buildings for strata” According to Mary Sai, executive director capital markets for Knight Frank Singapore.
In a research note about the local market for strata commercial properties released by Knight Frank on Aug 2 the company noted that the total volume of transactions for strata offices decreased in the 1H2023 period compared to six months preceding.
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In in the beginning of the year there were 149 transactions in the strata office that totaled $652.9 million were reported. This represents an 19.8% fall from the $814.1 million of sales in 2H2022 that saw 160 transactions. “Amid the tensions in the region, economic uncertainty, and the rising interest rates, the demand for strata offices decreased,” says Sai.
However, the introduction of strata office space following the introduction Solitaire on Cecil Solitaire on Cecil was a significant influence on the market, and also accelerated sales activity, accompanied by an increase in demand, she adds. “The introduction of the new bite-sized office assets freehold that are investment grade in the CBD location was missing in the marketplace for many years.”
The totality of the market demand for brand new CBD situated office buildings is probably understated since certain purchases made at Solitaire were not reported, or caveats weren’t filed due to certain buyers’ preference to maintain a low profile and keep their purchases private, according to Sai.
The rush to buy strata office buildings located at Solitaire on Cecil also affected the cost of a unit for freehold strata office units in 1H2023, when it climbed an impressive 20% to $3,746 per square foot. “This was because Solitaire on Cecil selling all of its units for a total worth of $321.8 million, with an average of $4,239 psf based upon the caveats lodged,” says Sai.
Since there is no new office supplies for strata offices coming up for the rest of the year, transactions in this sector is likely to slow. However, the market is expected to generate the sum in the range of $1.1 billion to $1.2 billion, with the benefit of an increase in demand from residential property investors who were dissuaded by February 2023 property cooling measures as well as the changes to the Residential Property Act last month according to Sai.
However the retail sales in strata declined to 113 transactions valued at $184.2 million, as compared to 120 transactions worth $351.5 million in the 2H2022. A headwind such as a labor shortage in service industries as well as rising finance and business costs have contributed to a softer retail market for strata, says Sai.
The most significant strata retail deal in 1H2023 was a sale of freehold properties in Oxley Tower for $21 million in June. The other sales in the submarket were below $10 million. Strata buyers and investors focused on areas of interest like Downtown Core (17 transactions worth $46.6 million) and Rochor (16 transactions valued at $23.5 millions).
“Individual retailers with moderate desires and well-established corporate firms that have shops or F&B chain operators who are looking to invest in an expanded strata retail component of the context of an integrated development are likely to remain seeking strategic retail investments” Sai says. Sai.
However, the challenges of meeting the demands of this magnitude remain as the supply of strata retail space is limited as Singapore’s retail industry is “largely controlled by large malls that are managed by REITs” She adds.