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Strata office market ‘starved’ of new units, sold-out Solitaire on Cecil spurs demand: Knight Frank

/ EdgeProp Singapore |

August 2, 2023 1:35 PM SGT

The introduction of new bite-sized freehold office assets of investment quality in a CBD location had been absent from the market for several years

The brisk sales at Solitaire on Cecil dominated the top strata office unit transactions in 1H2023, reflecting a strong indication that the market has been “starved of new strata office units”, says Mary Sai, executive director, capital markets, at Knight Frank Singapore.

In a research note on the local strata commercial market published by Knight Frank on Aug 2, the consultancy noted that the overall transaction volume for strata offices slowed down in 1H2023 compared to the six months prior.

Over the first six months of this year, 149 strata office transactions worth $652.9 million were recorded. This is a 19.8% fall from the $814.1 million sales in 2H2022 which saw 160 transactions. “Amid the geopolitical tensions, economic uncertainties and increasing interest rates, demand for strata offices eased,” says Sai.

However, the addition of new strata office stock from the launch of Solitaire on Cecil had a significant impact on the market and spurred sales activity, with evident pent-up demand, she says. “The introduction of new bite-sized freehold office assets of investment quality in a CBD location had been absent from the market for several years.”

The full extent of market demand for new, CBD located strata office units is likely still understated as some of the purchases at Solitaire were not reported or caveats were not lodged, given some buyers’ preference to keep a low profile, says Sai.

The rush to purchase strata office units at Solitaire on Cecil also had an impact on the average unit price of freehold strata offices in 1H2023, which climbed by a substantial 20% to $3,746 psf. “This was due to Solitaire on Cecil selling out all units with a total sales value of $321.8 million at an average price of $4,239 psf based on the caveats that were lodged,” says Sai.

With no more new strata office supply in the pipeline for the rest of this year, transaction activity in this segment is expected to slow down. The market is still projected to rake in a total transaction value of $1.1 billion to $1.2 billion, benefitting from spillover demand from residential property investors deterred by the April 2023 property cooling measures and the amendment of the Residential Property Act last month, says Sai.

On the other hand, strata retail sales declined to 113 transactions worth $184.2 million, compared to 120 transactions valued at $351.5 million in 2H2022. Headwinds such as a labour crunch in service industries, and rising business and finance costs contributed to a quieter strata retail market, says Sai.

The most notable strata retail transaction in 1H2023 was the sale of two freehold units at Oxley Tower for $21 million in June. All other sales in this submarket were under $10 million. Strata retail investors and buyers honed in on preferred locations such as Downtown Core (17 transactions worth $46.6 million) and Rochor (16 transactions worth $23.5 million).

“Individual retail investors with modest appetites as well as established corporate companies that include shop and F&B chain operators eyeing a larger strata retail component in an integrated mixed development will continue to be on the lookout for strata retail investment opportunities,” says Sai.

However, challenges to meet this level of demand persist as the inventory of available strata retail space is limited, as Singapore’s retail sector is “largely dominated by sizeable malls under REIT management”, she adds.

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