Strata commercial units in Singapore’s CBD set to shine for investors
By Tay Liam Hiap,
ERA Singapore
/ EdgeProp Singapore |
Owners of The Arcade, GB Building, Orchard Towers, High Street Centre, Far East Shopping Centre (pictured), Excelsior Hotel and Shopping Complex, and International Plaza have all either attempted or initiated collective sales, further expanding the list of commercial properties seeking en bloc buyers (Photo: Samuel Isaac Chua/EdgeProp Singapore)
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When the collective sale of Tanglin Shopping Centre for $868 million was successful in February 2022, it marked a pivotal moment in Singapre’s commercial real estate. As the largest en bloc sale of that year, this transaction set the tone for other ageing commercial buildings in the Central Area looking to sell collectively.
However, this was followed closely by the Urban Redevelopment Authority (URA)’s announcement of strata subdivision restrictions in March 2022, a planning policy that will reshape the commercial property landscape.
Under these restrictions, commercial units within these areas cannot be subdivided into smaller units for sale. This policy also applies to buildings that fall under the two urban rejuvenation schemes: the Central Business District (CBD) Incentive Scheme and the Strategic Development Incentive (SDI) Scheme.
Key commercial districts, including Orchard Road, Tanglin Road, Scotts Road, Shenton Way, Robinson Road, and areas near significant landmarks like the War Memorial Park and Parliament House, all fall under the new regulations. The aim is clear: to limit fragmented ownership to preserve the quality and maintenance of commercial spaces in these key locations.
Despite this, the collective sale market for commercial properties in the Central Area has remained robust. Significant deals followed the Tanglin Shopping Centre sale, such as Ming Arcade in December 2022, Shenton House in September 2023, Delfi Orchard in May and, more recently, Concorde Hotel and Shopping Centre in November.
These reflect a broader trend: Ageing commercial buildings in prime areas are capitalising on their collective sale potential, even as the stock of available strata-titled commercial units shrinks. But what do these shifts mean for the future of Singapore’s strata commercial units?
Significant collective sale deals on Orchard Road this year include Delfi Orchard, which sold for $439 million in May, and more recently, Concorde Hotel and Shopping Centre (pictured above), which sold for $821 million in November (Photo: Samuel Isaac Chua/EdgeProp Singapore)
A dwindling goldmine for investors
Even with the regulations in place, the commercial collective sale market has continued to be a hive of activity. The owners of The Arcade, GB Building, Orchard Towers, High Street Centre, Far East Shopping Centre, Excelsior Hotel and Shopping Complex and International Plaza have all attempted or launched collective sales, adding to the list of commercial properties seeking en bloc buyers.
One might wonder why these properties continue to attract buyers, even as the flexibility of future subdivisions is limited. The answer lies in the ageing stock of strata-titled commercial buildings. Many of these properties, developed decades ago, are now ripe for redevelopment.
The subdivision restriction affects about 39 buildings in the Central Area. These have a total stock of almost 7,000 strata units, 880 of which are in five buildings sold collectively.
Of the existing strata stock in the remaining 34 buildings, some 5,200 strata units are located in 25 buildings that were completed in the 1970s to 1980s, making them prime candidates for collective sale. The potential to unlock value through large-scale redevelopment projects has become a powerful motivator for sellers and buyers.
The wave of collective sales means that the existing stock of strata-titled commercial units is gradually diminishing. As more of these buildings are sold for redevelopment, there will be fewer opportunities for investors and businesses to acquire small, individual commercial units in the Central Area. This dwindling stock is particularly significant for smaller investors who previously relied on strata units for accessible entry points into the prime commercial property market.
For buyers seeking commercial space in the Central Area, it could mean paying a premium. The new supply of strata commercial units in the Central Area remains tight in the short term, with about 249 units at One Sophia — the former Peace Centre redevelopment. With supply constrained, commercial properties that remain strata-titled may see an increase in demand, particularly from businesses that require smaller, more flexible spaces.
The new supply of strata commercial units in the Central Area remains tight in the short term, with about 249 units at One Sophia — the former Peace Centre redevelopment (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Record highs as demand outpaces supply
This phenomenon has contributed to the strong price growth of strata commercial units in Singapore’s Central Area over the past year. While newer strata units in the CBD have commanded premium prices, older developments have also seen notable price increases, highlighting the broad appeal across the market.
Properties along Orchard Road and Scotts Road hit record highs, reflecting their prime location and sustained demand. Similarly, strata-titled commercial units outside the subdivision-restricted areas, such as VisionCrest Orchard, Suntec City and Samsung Hub, have continued to see upward trends, driven by their accessibility and appeal to various investor groups, including end-users, family offices, and non-institutional retail investors.
A key factor driving the attractiveness of strata commercial units is their price quantum, especially compared to other asset classes. With no Additional Buyer’s Stamp Duty (ABSD) or Seller’s Stamp Duty (SSD) involved, these properties remain viable for a diverse range of buyers. As new supply remains limited and existing stock continues to diminish through collective sales, prices are likely to trend upwards in the short to medium term.
Furthermore, Singapore updated the Building Control Act in September, with the new Mandatory Energy Improvement (MEI) regime kicking in by 3Q2025. Owners of energy-intensive commercial buildings of more than 5,000 sq m must develop an Energy Efficiency Improvement plan to cut their energy use by at least 10% or face fines of between $10,000 and $150,000. It could pressure older strata-titled buildings to push for collective sales as their operating costs continue rising.
With a potentially more favourable interest rate environment and a broader commercial real estate market recovery, strata commercial properties are likely to shine among investors. The scarcity of supply and growing demand positions strata units as a prime asset class for those seeking investment opportunities in Singapore’s Central Area.
Strata-titled commercial units, like VisionCrest Orchard (pictured above), Suntec City and Samsung Hub, have continued to see upward trends (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Fewer pieces, larger stakes
The URA’s policy aims to create a more cohesive and sustainable development environment, limiting the over-fragmentation that has historically occurred through strata subdivision. In the long term, the strata subdivision restrictions could lead to a more consolidated commercial real estate market in the Central Area.
Strata commercial units in Singapore’s Central Area are set to become a rarer and more valuable asset class, especially Grade A offices with freehold or 999-year tenures. The commercial collective sale market is likely to remain robust as more ageing buildings look to unlock their en bloc value, driven by developers and institutional buyers looking to capitalise on redevelopment potential. As such, collective sales reduce the availability of these units, and coupled with the URA’s restrictions, prices for remaining units are expected to rise.
For developers, this creates avenues to embark on larger-scale redevelopment projects that appeal to institutional investors. However, it comes at the cost of reducing the stock of strata-titled units, particularly in areas affected by the subdivision restrictions.
For individual and retail investors, this may present opportunities for those who already hold such units and those willing to pay a premium for ownership in a constrained market. The challenge lies in navigating a market where strata-titled commercial units are becoming increasingly scarce.
The Central Area’s strata commercial market will surely be one to watch for those seeking flexible, smaller commercial spaces. It will offer both opportunities and challenges as it evolves in response to these policy shifts.
Tay Liam Hiap, managing director (investment sales) for ERA Singapore (Photo: ERA Singapore)
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