Singapore Strata Office Sales Slid in 2023 1H as Supply Dwindled

Despite a boost from a sold-out project in the central business district, trades of strata-titled office assets in Singapore plunged by 20 percent in the first half of the year from the preceding six months as rising interest rates crimped smaller deals and a shortage of new supply limited trades of floors and rooms in office buildings.

About 149 strata-titled office assets changed hands for S$653 million ($486 million) in the first six months of the year, slowing significantly from the 160 transactions worth S$814 million booked in the latter half of 2022, when private investors paid record prices for strata assets, data from Knight Frank showed.

The 15 office floors sold in Solitaire on Cecil, a joint development project by TE Capital and Lasalle Investment Management, dominated sales of top-end units in the first-half, with the building’s $321.8 million in deals providing just under half of the city-wide total for the sector and supporting overall turnover volume in what might otherwise have been a more disappointing market.

“Amid the geopolitical tensions, economic uncertainties and increasing interest rates, demand for strata offices eased,” Knight Frank said in the report. However, the firm’s analysts see the sector’s status as an alternative to residential purchases supporting deal volumes, noting that, “freehold strata office units remain in high demand, as local businesses and foreign private wealth investors acquire these units as a hedge against rental cycles, for the operational flexibility, for capital preservation and subsequent appreciation.

Moving High-End

About 80 percent of all transactions in the first half were located in Singapore’s downtown core, where 61 strata units changed hands for a total of S$521.5 million. Solitaire on Cecil accounted for nearly 62 percent of that total, with floors in the property selling at an average price of S$4,239 per square foot, the property agency said citing data from official caveats.

Compared to the same period last year, the volume of strata office assets changing hands from January through June nearly doubled from the S$340 million transacted in the first six months of 2022. Average prices have also risen as high-end assets continue to find buyers.

Knight Frank said the average selling price for strata office units hit S$3,107 per square foot in the first half of the year, up 14.5 percent from the average unit price of S$2,713 per square foot seen in the preceding six months, and up 40 percent from the S$2,237 per square foot fetched a year ago.

Contributing to the change were some benchmark-setting deals at Solitaire on Cecil, with the top floor having traded for a record S$4,325 per square foot in April, followed by the 17th and 18th floors selling between S$4,285 and S$4,295 per square foot, respectively.

Knight Frank said there is pent-up demand for freehold office assets in the central business district, where an on-going shortage of high-end units has been exacerbated by new rules from the city-state’s Urban Redevelopment Authority (URA) issued early last year restricting development of new strata office projects in Singapore’s urban core.

Steady Demand, Limited Supply

With Singapore moving to limit speculative investment in the residential market in recent months, including increases in transaction taxes rolled out in April, many private investors have been shifting their focus to the strata office market as an avenue to profit from rising property values.

“Interest in the strata commercial market remains stable despite economic headwinds,” said Mary Sai, executive director for capital markets at the agency. “With the recent property cooling measures and amendment in the Residential Property Act, some focus will be channelled to investible strata commercial units.”

Despite the demand, Knight Frank expects a slide in strata deal volume for the rest of 2023 with current supply limited and no new projects set to enter the market.

For the whole year, Knight Frank estimates that strata office investment is likely to range from S$1.1 billion to S$1.2 billion – a level in line with the S$1.1 billion of transactions in 2022.

The agency said local businesses and foreign private wealth investors will likely continue driving demand for strata offices as a hedge against rental cycles, as well as for capital preservation and appreciation.