“Shophouses are likely to remain a bright spot for 2016. Meanwhile, the success of new strata office project launches in the next few months will set the tone for the market in 2016.” -Mary Sai, Executive Director & Head Commercial Sales, Knight Frank
Shophouses Emerged As An Outperformer Amid Muted Sentiment
Demand is observed to be bottoming out for strata commercial units, with mixed bag of price performance while buyers remained cautious amid dreary market sentiment. Shophouses outperformed in the commercial sales property market in 2015, as some investors continues to reap reasonable capital gains.
Sustained interest was seen for shophouses throughout 2015, with a total of 44 caveats lodged in H2 2015 from 41 caveats in H1 2015. However, total transaction value slipped 9.5% from H1 2015 to S$282 million in H2 2015 from $3,291 psf in H1 2015. On the contrary, average prices for leasehold shophouses dipped 7.5% to $4,858 psf in H2 2015 compared to $5,250 psf in H1 2015 for leasehold shophouses was mainly attributed to a shophouse transaction along North Canal Road sold at $10,406 psf in June 2015.
Even with the stricter Total Debt Servicing Ratio (TDSR) framework in place that have dampened island-wide property demand and prices, shophouses that were bought post-TDSR and sold in H2 2015, continued to see capital gains. This proportion of capital gain was however lower compared to shophouses bought during pre-TDSR days and sold in H2 2015. To illustrate this, a leasehold shophouse in Duxton Hill transacted for $7 million in February 2013 (pre-TDSR), was recently sold for $9.4 million in November 2015, amounting to a 34.3% capital gain. Another leashold shophouse in Telok Ayer (post-TDSR), and changed hands in October 2015 for $7.7 milliom, at a 7.0% capital gain.
Going forward, a fairly quiet property market and rising interest rates would be increasingly challenging for investors to buy and sell commercial properties in the short term for quick capital gains. In terms of rentability, main road-facing shophouses located in areas like Tiong Bahru, Keong Saik road and Havelock Road continued to be well sought after by unique F&B concept operators and niche office tenants. Shophouse is toued as an attractive property asset over the loner term given its rarity status with no future supply for conservation shophouses.
Overall in 2015, shophouses in areas such as District 1 (Raffles Place, Cecil, Marina, People’s Park), District 2 (Anson, Tanjong Pagar), District 8 (Little India), District 14 (Geylang, Eunos) and District 15 (Katong, Joo Chiat, Amber Road), remained popular among buyers.
A total of 100 caveats were lodged for strata retail units in H2 2015, down by 17.4% compared to 121 caveats in H1 2015. Only 37 caveats were lodged for new sale strata retail units in H2 2015. Likewise, 61 caveats were lodged for resale strata retails units in H2 2015, lower compared to 72 caveats in H1 2015. Total strata retail transaction value slipped 7.1% in H2 2015 compared to H1 2015.
Freehold strata retail
Only ten new sale freehold caveats were lodged in H2 2015, with average price declining by 3.1% to $3,720 psf in H2 2015, compared to $3,840 psf in H1 2015. Sale of units at NeWest remained fairly consistent, with six caveats lodged during this period, transacting at an average price of $4,113 psf. Another 14 caveats for NeWest were lodged in H1 2015.
Demand for freehold resale strata retail market stayed fairly stable with 33 caveats lodged in H2 2015 compared to 36 caveats in H1 2015. However, average priced for freehold resale strata retail units were resilient in H2 2015, slipping 18.8% to $2,518 psf from $3,100 psf in H1 2015. The overall retail market softened further with reduced tourist arrivals and consumer spending in the later half of 2015, leading to an uphill task of attracting retail tenants, particularly for owners of strata retail untis. SInce strata retail developments tend to be less well-managed compared to a developer-owned shopping malls, the newly completed strata retail developments are likely experience higher vacancy levels in 2016.
Leasehold strata retail
Average prices of new leasehold strata retail units fell further to $2,902 psf in H2 2015 due to lower selling prces of retail units at High Park Residence (average $2,425 psf), which is located in the Outside Central Region. Average prices of resale leasehold retail units strengthened 3.4% from H1 2015 to $2,486 psf in H2 2015 despite fewer transactions being recorded.
Companies and foreigners formed increased proportion of strata retail unit buyers
The proportion of Companies and Foreigners buying retail units increased by 8.6 pp and 2.0 pp respectively in H2 2015 compared to H1 2015. Meanwhile, Singaporeans were seen to be cautious towards strata retail property market. Only 29 caveats were lodged by Singaporeans in H2 2015, down from 48 records in H1 2105.
The proportion of strata retail units transacted above S$1 million price tag shrunk to 66.0% in H2 2015, compared to 71.1% during H1 2015. As potential investors continue to be on the lookout for strata retail spaces, they are also observed to be mindful of the overall price quantum. The retail landscape is expected to face threats of tighter labour policies, shrinking demand for physical retail spaces amid the rise of e-commerce presence and an anticipated slower global economy in 2016.
A total of 107 caveats were lodged for strata-titled (strata) office spaces in H2 2015, down by 10.8% from 120 caveats in H1 2015. This was largely attributed to no new launches of strata office projects during H2 2015. Conversely, the total resale strata office transactions (77 caveats) grew 40.0% in H2 2015 compared to 55 caveats lodged in H1 2015. Meanwhile, total strata office transaction value rose 32.3% in H2 2015 compared to H1 2015.
Average prices of strata office slipped by 6.0% from $2,528 psf during H1 2015 toS2,376 psf in H2 2015.
Freehold strata office
Only one new sale freehold strata office unit caveat was lodged in H2 2015, down from nine caveats in H1 2015. The sole transaction was contributed by Crown at Robinson, located at Tanjong Pagar within the Central Business District (CBD) at S3,502 psf.
On the contrary, resale freehold strata offices saw 24 caveats, up from 19 caveats in H1 2015, with average prices falling 20.8% to $1,915 psf in H2 2015 from $2,417 psf in H1 2015. This dip in average price was influenced by a higher proportion of large-szied office unit caveats lodged (above 1,000 sq ft) during H2 2015, which typically transact at lower psf prices than smaller units.
Leasehold strata office
Total number of leasehold strata office caveats fell 10.9% to 82 caveats in H2 2015 compared to 92 caveats in H1 2015. Only 19 caveats were lodged for new sale strata office units in H2 2015, down from 50 caveats in H1 2015. Vision Exchange emerged as the best performing new sale project with seven caveats recorded during H2 2015, accounting for 36.8% of the total new sale leasehold transactions in this period. Demand for resale leasehold strata offices surged 47.2% to 53 caveats in H2 2015 compared to 36 caveats in H1 2015.
Overall average price for leasehold strata office prices depressed slightly in H2 2015. Average new sale leasehold office prices slipped marginally by 3.2% to S2,576 psf in H2 2015 compared to S2,660 psf in H1 2015. Average prices for resale leasehold strata office rose 3.3% to $2,380 psf in H2 2015 compared to $2,305 psf in H1 2015.
Singaporean form increased proportion of strata office unit buyers in H2 2015
The proportion of Singaporeans buying strata-titled offices surged from 18.0% in H1 2015 to reach 31.8% in H2 2015. This translates to a 59.1% increase in the number of Singaporean buying strata offices. Correspondingly, the proportion of Company and Foreign purchasers shrunk by 11.3 percentage point and 2.5 percentage point respectively in H2 2015 compared to H1 2015.
The proportion of office transacted below the S$1 million price tag saw an upward lift to 26.2% in H2 2015 compared to 18.3% in H1 2015. Strata office transactions of between S$1 miilion and S$2 million price tag fell to 27.1% in H2 2015 compared to 37.5% in H1 2015.
Growing interest was observed for strata office units below S$1 million during H2 2015 . In terms of new sale strata office units, developers prices held steady , although prices for resale office units have softened further with increasing price competition among sellers in H2 2015.
Strata office leasing market faces competition from co-sharing office spaces
The strata office market is also facing emerging threats from co-sharing office spaces, which are gaining popularity with smaller office tenants (less than 1,000 sq ft). Under the co-sharing office space scheme, the office tenant can leverage on common amenities such as meeting rooms, pantry and reception area, where charges on the use of these spaces are on basis of usage. In contrast, tenants renting a conventional office space may instead need to carve out such separate ancillary areas from their existing units.