Sentiment improving for strata shops, offices

Business Times - October 18, 2012

Sentiment improving for strata shops, offices

CLOSE to $1.3 billion of strata retail units have changed hands so far this year, almost double last year’s $685 million.

As for strata office deals, the figure has crossed the $1.6 billion mark since January, compared with $1.4 billion for the whole of last year, going by CBRE’s analysis of caveats captured by the SISV Realink and URA Realis systems.

CBRE’s executive director for investment properties Jeremy Lake said that, with more people who had invested earlier in strata commercial space now enjoying attractive gains in price, sentiment has improved, and demand for this type of property has picked up in the last six months. He said that the fundamentals got the trend going: Firstly, cooling measures in the residential property sector caused a diversion of interest to other sectors; secondly, the low interest rates on savings has meant that there was little point in leaving cash in the bank, and thirdly, the banks are charging low rates on commercial mortgages.

These fundamentals are still intact but now, more people are aware of the attractions of buying strata commercial units, he said. Caveats for strata commercial transactions this year are coming not only from new projects under construction such as Eon Shenton, Oxley Tower, Paya Lebar Square and PS 100, but also from resale deals in older developments such as The Adelphi, International Plaza, Lucky Plaza, Sim Lim Square and Parkway Centre.

Mr Lake said that while buyers of strata office or retail units in new projects under construction may be opportunistic and take a shorter-term view, those buying units in completed projects would generally have a medium- to long-term outlook, whether they are buying for own occupation or for investment reasons.

A Guthrie-Sun Venture tie-up which acquired 86 office and 77 shop units in The Adelphi from CapitaLand in late 2010 has nearly resold all the units. Only one is left – a 635 sq ft shop unit on the fourth level, which is being negotiated for sale at around $1.65 million. The remaining 76 shops have been sold at between $1,914 psf and $3,100 psf. All 86 offices have found buyers at between $1,675 psf and $2,350 psf. Total sales value from selling these office and shop units is about $354 million, or 62 per cent more than the $218.1 milllion that Guthrie and Sun Venture paid for the units.

The shops are on Basement 1 to Level 4 and the office units, on Levels 5 and 7 to 10. The Adelphi is a 999-year leasehold building near City Hall MRT station. Buyers of the office and shop units include law firms, insurance companies, accounting firms and doctors, most of whom were previously not in the building but who have bought the space for their own occupation; high net-worth investors looking at rental income are also among the buyers, said CBRE, the marketing agent.

It has been the reverse situation at Parkway Centre in Marine Parade, where a consortium that acquired 51 office units earlier this year with the original intention of investment, agreed to sell some units after receiving reverse enquiries from some existing tenants, mostly operators of education centres looking to buy over the units.

The consortium appointed CBRE to conduct a formal sale process. Ten units have been sold since late August at between $1,551 psf and $1,675 psf. When the consortium, led by real estate investor Kishore Buxani, acquired the 51 units for $53.4 million or about $1,043 psf, it had intended to get involved with the building’s management, spruce up the building and hold the units for longer-term yield. The 51 make up about 43 per cent of Parkway Centre’s share value. An extraordinary general meeting was held in late August and an upgrading contract is expected to be awarded soon. Refurbishment of the building is slated to begin next month and last four to six months. Parkway Centre is on a site with a remaining lease of 68 years.

Over in Bencoolen Street, Guthrie-Sun Venture has another tie-up in Burlington Square, where marketing efforts of 66 office units acquired in May from Wing Tai-City Developments have begun. Available are office units of between 549 sq ft and 1,066 sq ft. Each floor offers up to 8,061 sq ft of column-free space. The offices are on the fifth to 12th floors of the mixed development. Their occupiers will share, with Burlington Square residents, facilities such as a swimming pool, tennis court and gym. The office units, also being marketed by CBRE, are priced at $1,820 psf to $1,980 psf. Guthrie-Sun Venture paid $89.3 million or $1,318 psf. Burlington Square is on a site with a remaining lease of 83 years.

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