Ban on strata subdivision to boost investment appeal of Orchard Road, CBD corridor
By Tay Huey Ying,
JLL
/ EdgeProp Singapore |
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SINGAPORE (EDGEPROP) - Singapore’s CBD Corridor, Historic Zone and the Orchard Road shopping belt have received a land and asset value booster shot. It came in the form of a ban on strata subdivision of commercial spaces (offices, shops or restaurants) in standalone or mixed-use developments situated within these three designated zones. The ban took effect from March 15.
These restrictions are not new, having been included in various permutations as part of the sales conditions for several government land sales (GLS) sites. These include Paya Lebar Quarter, the upcoming IOI Central Boulevard Towers and Guoco Midtown.
Guarantee of quality
Buildings with fragmented ownership face maintenance issues and redevelopment challenges. When existing deteriorating strata subdivided commercial assets are gradually redeveloped, the designated districts can look forward to an uplift in image.
Under a single owner, the future developments are likely to be professionally managed and more regularly updated to stay relevant. This will enhance the value of both the property and the land in these designated zones. It will in turn serve as a guarantee of quality for these prime districts.
When existing deteriorating strata subdivided commercial assets are gradually redeveloped, the designated districts can look forward to an uplift in image (Photo: Albert Chua/EdgeProp Singapore)
Enhanced rental income and stability
Blue-chip tenants are often drawn to prime commercial developments that have corporate landlords rather than strata-titled developments with individual landlords. These tenants want to be in buildings that have a superior standard of maintenance, upkeep and tenant mix. And they are willing to pay premium rents for quality buildings. (Find Singapore commercial properties with our commercial directory)
Hence, all else being equal, a single-owned, professionally managed commercial asset will command a premium in rent over its strata-titled counterparts. Due to concerted and well-coordinated tenant mix curation and marketing efforts, these single-owned buildings often enjoy higher occupancies than their strata-titled counterparts.
Coupled with blue-chip tenants being better pay masters, these factors culminate in prime single-owned commercial assets enjoying a higher and more regular stream of rental income compared to strata-titled assets, thus supporting higher asset and land values.
Growing pool of institutional investors
Singapore’s commercial investment real estate market has matured and is today attracting global funds with mid- to long-term investment horizons. They are on the hunt for prime income-producing assets to add to their portfolio and have been drawn to prime commercial assets in the designated zones.
In the past decade, institutional purchases accounted for nearly 70% of the $26 billion worth of en bloc commercial deals, including the sale of stakes in buildings in the designated zones. (See potential condos with en bloc calculator)
The guarantee of a long-lasting, prime, quality neighbourhood and the removal of the disamenity risk posed by degenerating strata-titled assets will elevate the appeal of commercial assets/sites in the designated zones.
Stiff competition by institutional investors looking to acquire assets could in turn drive up land values, including potential collective sale sites that are zoned for commercial use.
Prized assets for the long term
In land-scarce Singapore, prime commercial sites in the densely built CBD and Orchard Road corridor are prized possessions, held by owners for the long haul. In the past decade, only one development — 30 Raffles Place — saw its retail and office podium subdivided following acquisition and asset enhancement works. It was subsequently resold on a collective sale basis to a single party.
None of the remaining $26 billion worth of commercial asset transactions within the designated zones underwent strata subdivision for resale. This is evidence that the income-producing ability of assets/sites in the designated zones has trumped over their strata sale profit potential.
Looked at in this light, the loss of strata-subdividing right for sites in these designated zones will generally not disadvantage the owners. Instead, they can look forward to enhanced asset and land values arising from the collective gentrification of the zones they are situated within.
Tay Huey Ying is the head of research & consultancy at JLL Singapore (Credit: JLL)
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