Demand for strata office and retail units plunges in first half of year

Demand for strata office and retail units fell sharply in the first half of this year with weak demand likely to persist for the second half, according to a report yesterday by property consultant Knight Frank.

This is the result of sellers being not likely to lower their price expectations while buyers remain wary given the rising stock and vacancy rates in the office and retail sector, said the firm.

The Total Debt Servicing Ratio (TDSR) regulation also continues to put a lid on demand from private individuals, it said.

Said Ms Mary Sai, its executive director and head of commercial sales: "Although some investors have diverted to commercial properties due to the residential cooling measures, many are now feeling the brunt of the TDSR requirements."

Demand for strata-titled offices weakened sharply in the first half of the year, with 115 caveats lodged, 65.4 per cent lower compared with the same period last year. Compared with the second half of last year, transaction volume fell by 37.8 per cent to 185 caveats.

Average prices of strata offices held firm in the first six months of this year at $2,536 per sq ft (psf) compared with $2,330 psf in the second half of last year.

But Knight Frank observed that the weak leasing market has resulted in a "price war" among owners, with actual rents being concluded at about 10 per cent to 20 per cent lower than the initial asking prices.

As for strata-titled retail units, 119 caveats were lodged in the six months to June, down 52.2 per cent from 249 caveats lodged in the six months to December last year.

No new projects were launched in the first half of this year.

Average prices for freehold resale units slipped by 16.8 per cent to $3,100 psf from $3,725 psf over the same period while average prices of resale leasehold units inched up 8.4 per cent to $2,404 from $2,218 psf.

The number of shophouses sold in the first six months slipped 18.4 per cent to 40 caveats from 49 caveats.

However, average prices for freehold shophouses increased by 10.6 per cent to $3,291 psf from $2,975 psf.

Average prices for leasehold shophouses rose 16.5 per cent to $4,836 psf from $4,152 psf. Knight Frank said shophouse prices continued to rise as owners have high price expectations for "these rare and valuable assets". But the falling transaction numbers suggest that potential buyers may have been deterred by the rising prices that could translate to lower yields, while loan curbs have significantly reduced the pool of potential buyers.

For the second half of the year, Knight Frank expects the overall number of strata office and retail units sold to remain flat compared with the first half at 180 to 220 units. This will bring the total number sold to some 420 to 470 units for the full year.

A version of this article appeared in the print edition of The Straits Times on September 29, 2015, with the headline 'Demand for strata office and retail units plunges in first half of year'. Print Edition | Subscribe