Following the first article in this series, which outlined the history of strata-titled offices, this second article shifts the focus to the present, and delves into the investment potential of such properties.
In the 1970s, a decade after the Urban Redevelopment Authority (URA) introduced strata-titled offices, the value of these high-rise units with shared amenities remained underrated. The lack of interest discouraged the development of more of such properties, leading to a sharp shortage in supply today.
This shortage in supply is now turning out to be a blessing in disguise. It is the main reason strata-titled offices almost always command a high rental yield. In Q4 2011, the average gross rental yield for such units was 4 to 6%.
The high yield is, in turn, a major catalyst for the recent revival in demand for these properties. Within the first 10 months of this year, transactions for strata-titled offices hit a staggering $1.6 billion, surpassing the $1.4 billion that was achieved in the whole of last year.
Adding to its appeal is the fact that strata-titled offices have a tendency to enjoy higher than average occupancy rates, an indication of investor preferences for such properties over rental ones in this period of a volatile rental market. According to numbers from the URA in Q4 last year, occupancy rates for the overall market within the central region was at 88.2%. Strata-titled offices in the same area saw significantly higher occupancy at 91.7%.
On top of the above mentioned factors, strict restrictions in the residential property market, such as the seller’s stamp duty and the additional buyer’s stamp duty, are also driving investors to seek alternative investment options.
Even older strata-titled offices are not spared the recent revival in interest. Those in prime locations such as The Adelphi, International Plaza and Sim Lim Square are sealing resale deals while older offices built half a century or more ago now appeal to those who hope to cash out on a collective sale.
Strata offices see a varied mix of tenants, depending on their locations. At Adelphi, law firms, insurance companies and accounting firms dominate the tenant mix while those at Parkway Centre are occupied by educational centres. One of the latest strata office developments, the Singapore Business Federation Centre (SBF Centre), is also looking to have 20% of its units taken up by medical clinics on top of commercial tenants.
According to figures released by the URA, the market for strata properties is seeing more action this year. Caveats lodged for strata titled offices this year stood at 685 at the end of September, already surpassing the 475 caveats that were lodged last year from January to October.
*Last year’s figures were taken from records taken on October 2, 2011. This year’s figures are inclusive of transactions up to September 27.
The future looks bright for these offices as an injection in supply is in the pipeline in response to the increase in demand.
This is especially so for those offices that will be developed in Tanjong Pagar, where the government has drawn out plans for the development of a new waterfront area to rival Marina Bay. This will take the place of the current port, which will be shifted to Tuas. The aim is to create a vibrant lifestyle and tourist hub in the middle of the CBD, effectively increasing its spread and pumping more life into the area even after office hours.
The targeted completion year of the waterfront city is only in 2027, but long-sighted developers are already pouring money into the area. One such example is Guocoland, who committed $3.2 billion to a project linked to the MRT station. The development will contain commercial areas, a hotel and residential units.
Caught up in the tide of these exciting rejuvenation plans, both supply and demand of strata-titled offices are likely to increase.
The recent wave of new launches to hit the market hints at the pattern that future strata-titled offices will follow. Areas are often small to keep the total price affordable – several recently launched units in the city fringe were sold for below a million dollars. In contrast to the no-frills shared facilities offered by older strata-titled offices, lifestyle amenities are almost a must today. Swimming pools, gyms and rooftop gardens are no longer a rarity.
The government’s aim to spread out economic activities from the central areas would also result in more offices being developed at the city fringe, thus giving buyers more of a choice in terms of location, as well as options which can cater to their varying budgets.
Colliers International estimates that 1.23 million sq ft of strata office space will be built from now till 2016.
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Tags: buyer’s stamp duty, International Plaza, investment, investment potential, SBF Center, Sim Lim Square, Singapore Business Federation Centre, Strata-titled offices, The Adelphi, URA, urban redevelopment authority