Strata Commercial and Retail (Market Updates Feb 2021)

Office Space Singapore

Strata Commercial

Snapshot of overall strata office and strata retail performance

STRATA OFFICE

Overall performance
  • The total strata office transaction volume recovered to 127 units in H2 2020, after hitting a record low of 79 units (since H1 2009) in the first half of 2020. This brought full-year sales volume in 2020 to 206 units, some 34.4% lower than the 314 units sold in 2019. Out of the 206 units, 56 were smaller than 500 square feet (sq ft). Total sales volume in 2020 was also the lowest on record since 2003, as the COVID-19 pandemic impacted buyer’s sentiments in the strata office sector.
  • Strata office transaction value in H2 2020 increased by 16.8% half-yearly (h-o-h), totalling some S$319.5 million compared to S$273.5 million in H1 2020. However, the full-year transaction value in 2020 (S$593.0 million) was still 69.4% lower than the S$1,936.5 million recorded in 2019.
  • Strata offices located in the Central Business District (CBD) remained desirable and propped up sales amid the pandemic, with transactions in the Downtown Core accounting for some 59.7% (S$190.9 million) of the total sale value in H2 2020. The top five strata office transactions by price quantum in H2 2020 were also located in the Downtown Core. For instance, two units at Springleaf Tower exchanged hands for over S$20 million with the highest sales values during this period.
  • With limited new launches of strata offices in recent years, all 127 strata office units sold in H2 2020 were resale transactions. Strata office developments Woods Square in Woodlands Planning Area and Centrium Square in Kallang Planning Area obtainedtheir temporary occupation permits (TOP) in Q1 2020 and Q2 2020 respectively and continued to record resale transactions. There were 18 resale transactions in Centrium Square in H2 2020, making the Kallang Planning Area the second highest in terms of sales value totalling some S$43.0 million.
  • The average unit prices of strata offices declined by 13.8% h-o-h to S$2,124 per square foot (psf) on strata area in H2 For the entire year 2020, unit prices were generally stable with a slight uptick of 2.2% to S$2,268 psf compared to the whole of 2019.
Comparing freehold and leasehold strata office performance
  • Both freehold and leasehold strata office units registered higher transaction volumes in H2 2020. There were 54 freehold and 73 leasehold units sold in the second half of 2020, compared to 36 freehold and 43 leasehold units in H1 2020.
  • Despite more leasehold units transacted in H2 2020, 48.0% fewer leasehold strata office units (116) were sold overall in 2020, compared to 223 in 2019. Freehold transaction volumes were largely unchanged, with 90 units exchanging hands in 2020, just one less than in 2019. Centrium Square accounted for 31 or about one-third of the freehold units sold in 2020.
  • The average unit prices for leasehold and freehold units also dipped in H22020 to S$2,115 psf (-12.4% h-o-h) and S$2,150 psf (-15.6% h-o-h) on strata area respectively. However, for the whole of 2020, leasehold unit prices rose by 9.2% year-on-year (y-o-y) to S$2,229 psf. This might be due to certain outlier sales, such as a strata office unit at Orchid Hotel that sold for S$7,657 psf.
Transaction Volume and average unit prices of freehold and leasehold strata office units
Market outlook

In 2021, the strata office market together with the larger office sector in
Singapore is expected to remain under pressure, with companies critically
reviewing the way space is occupied in the post-pandemic era characterised
by evolving remote work protocols. Therefore, transaction volumes as well
as prices are likely to remain subdued for at least the first six months of the
year. Nevertheless, as office users rationalise and right-size their space
requirements, occupiers such as small enterprises may turn towards owner-occupied strata offices as a viable alternative to tenanted space.
As such demand for strata offices, especially those in central locations, could improve in the second half of 2021.


STRATA RETAIL

Overall performance
  • As the pandemic upended the real estate market with the retail sector taking the brunt,the demand for strata retail spaces was severely weighed down. On a whole year basis, a total of 108 strata retail units totalling S$166.4 million exchanged hands in 2020, just half of the 205 units (S$343.9 million) sold in the previous year of 2019.
  • The declining demand for such strata retail space was further exacerbated by the acceleration of e-commerce that roiled retail businesses, pressurising many traditional shopowners to engage in unfamiliar virtual platforms. The phenomenon forced existing retail players to adopt omnichannel retailing strategies in efforts to remain relevant in a rapidly evolving industry, adapting to changes in consumer behaviour.
Transaction Volume and average unit prices of freehold and leasehold strata retail units
  • In the second half of 2020, 57 strata retail units were sold for a total of S$93.7 million, representing an increase of 28.9% from S$72.7 million in H1 2020 which had a lesser 51 units (Exhibit 3). The onset of the reopening of the economy and enabling of physical viewings allowed for more sales, albeit at transaction volumes lower than in the same period a year ago where 91 units were transacted for some S$135.0million.
  • The average price of units transacted in H2 2020 narrowed from S$2,867 psf in H1 to S$2,647 psf. With the continued lack of new strata retail supply, activity in the market segment was driven by transactions in the secondary market.
Comparing freehold and leasehold strata retail performance
  • The months of July to December 2020 registered the sale of 34 freehold strata retail units, a 47.8% increase from 23 units in the first six months of the year. This helped to raise the total transaction value by 147.3% from S$29.2 million in H1 2020 to S$72.2 million in H2. A notable deal included the sale of a Goldhill Shopping Centre unit spanning 1,087 sq ft for S$5.3 million.
  • Despite the more resilient performance of leasehold strata retail properties in H1 2020, demand fell to 23 units in H2, a 17.9% decrease from 28 units in the first half of the year. This brought the total transaction value to S$21.5 million, half of the value in H1 2020which recorded some S$43.5 million in sales. There was notable interest for strata retail units at Orchard Plaza, where four units on the second floor were sold from August to October 2020, with unit prices ranging from S$2,064 psf to S$2,860 psf.

Market outlook

  • Moving forward, the global economic outlook remains uncertain with recurring infections in other nations despite the distribution of the vaccines. And even if vaccine distribution proves to be successful, prices of strata retail units in Singapore are envisaged to remain soft with more distressed sales expected due to the lack of tourists and safe distancing measures still in place.
  • The demand for such strata spaces is expected to come from proprietors that intend to run their own businesses, preferring to set up shop in locations where strata retail developments tend to be typically located. Often the lower costs when compared to renting retail space in a prime shopping mall in the same location act as the greatest incentive.
  • Thus, with the retail market gravitating towards more experiential placemaking strategies and migrating some of their services to digital platforms, there is a growing imperative for strata retail storeowners to also adopt similar ways to survive in a market that is in constant change.

Taken from Knight Frank Singapore Strata Commercial Research Report. Click here if you wish to be added in our mailing list!

Compare listings

Compare