Weak demand for strata commercial properties to persist in second half of 2015: Knight Frank

SINGAPORE - Demand for strata office and retail units fell sharply in the first half of 2015 with weak demand likely to persist for the second half-year, according to a report released on Monday (Sept 28) by property consultants 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 1H 2015, with 115 caveats lodged, 65.4 per cent lower compared to the same period last year (332 caveats). Compared to 2H 2014, transaction volume fell by 37.8 per cent (185 caveats).

Average prices of strata offices held firm in 1H 2015 at $2,536 per square feet from $2,330 psf in 2H 2014. But Knight Frank observed that the weak leasing market has resulted in a "price war" among owners, with actual rents being concluded at approximately 10 per cent to 20 per cent lower than the initial asking prices.

As for strata-tiled retail units in 1H 2015, 119 caveats were lodged, down 52.2 per cent from 2H 2014 (249 caveats). No new projects were launched in the first half of 2015. Average prices for freehold resale units slipped by 16.8 per cent to $3,100 psf in 1H 2015 from $3,725 psf in 2H 2014. Average prices of resale leasehold units inched up 8.4 per cent to $2,404 in 1H 2015 compared to $2,218 psf in 2H 2014 .

The number of shophouses sold in the 1H 2015 slipped 18.4 per cent to 40 caveats from 49 caveats in 2H 2014. However, average prices for freehold shophouses increased by 10.6 per cent to $3,291 psf in 1H 2015 from $2,975 psf in 2H 2014. Similarly, average prices for leasehold shophouses went up by 16.5 per cent to $4,836 psf in 1H 2015 compared to $4,152 psf in 2H 2014.

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 escalating prices that could translate to lower yields, while loan curbs have significantly reduced the pool of potential buyers.

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

Demand for shophouses will continue to remain stable in the second half of the year, with between 30 and 40 units sold, said the firm.

Said Ms Sai: "While commercial properties are showing signs of less resilience, prices of shophouses remain firm in view of the limited supply."