Continued demand for strata office in 2022, with moderate recovery in strata retail in 2H2022
The second half of 2021 saw stable activity in the strata office market, while the strata retail market also regained steam, according to a report by Knight Frank Singapore. Strata office transactions in 2H2021 rang in at 165, bringing total transaction volume to 334 for the full year, a 56.8% y-o-y increase compared to 213 in 2020. “Sales volume largely recovered to pre-pandemic levels in 2021, similar to the 331 in 2018 and 308 in 2019,” says Mary Sai, executive director, capital markets, at Knight Frank Singapore.
All strata office sales in 2021 were resale transactions. Of these, 35.6% or 119 transactions involved units with freehold tenure, with total sales value of $315.9 million, up 60.2% y-o-y. Average transacted price of the freehold strata units was $2,430 psf, up 3.3% y-o-y.
Leasehold transactions totalled 215 for 2021 with a total sale value of $838.3 million, up 104% y-o-y. On a psf basis, prices decreased 0.2% y-o-y to $2,223 in 2021.
Total sales value came in at $1.2 billion for 2021, which Sai notes is a record high since 2014 and an almost 90% surge compared to 2020. “While average unit prices for 2021 remained largely similar at $2,276 psf (0.4% y-o-y increase), larger quantum sales materialised,” she adds.
Strata office space in District 1 saw a robust performance, accounting for a third of total sales volume in 2021, more than double that in 2020. Total transaction value for the district also surged 141.7% y-o-y to $731.2 million in 2021.
Sai also highlights that 69.5% of the strata offices transacted were below 1,000 sq ft, which might stem from demand from owner-occupiers rightsizing their office operational footprint.
Meanwhile, the strata retail market saw $256.1 million worth of transactions in 2H2021. For the whole of 2021, 280 units changed hands for a total of $523.3 million in sales value. This indicates that there were more smaller-sized deals of less than $1.5 million per transaction, says Sai.
“Factors driving this could include the blossoming of new enterprises and local brands establishing a foothold in the retail market, as retailers took up smaller footprint to kick-off new ventures,” she explains.
She adds that the “increasingly-gentrified” and higher occupational costs of shophouses might have propelled some retailers to move out and consider more affordable strata retail space options.
Sai is optimistic about the outlook for the strata office market in 2022. She expects demand for strata office units to grow from private wealth and family offices, as well as SMEs looking to rightsize office space requirements.
Combined with lack of new strata office supply in the medium term and some spillover investor interest from the private residential market as a result of the cooling measures announced last December, Sai believes both investor and owner-occupier demand that might flow into the strata office market in 2022 could translate to about $1 billion.
For the strata retail market, Sai notes sellers remain “cautiously optimistic”, following tightened measures in 2021 that prevented a clear recovery in the retail sector. “Many strata retail owners are currently not in a hurry to sell their units unless reasonable offers are made,” she says.
She expects interest to pick up due to the current affordability of strata retail units, underpinning a “moderate recovery” in 2H2022. Knight Frank is projecting total transaction value of $500 million for strata retail deals in 2022.