What you need to know about investing in strata offices in 2011

Should you make the move from residential to office property investment this year ?

According to a study from R’ST Research made exclusive for Singapore Business Review, 477 strata office units were transacted in 2011. This was more than that transacted in 2010 – which saw a total of 471 units transacted.

R’ST director Ong Kah Seng notes that the active buying interest for strata offices in 2011 was partly driven by the private residential cooling measures implemented in January where investors favour non residential properties which do not come with measures like sellers’ stamp duty.

Nevertheless, while while sale of strata office properties was encouraging in 2011, Mr. Ong says that the sales activity was considered ‘healthy’ and ‘moderate’ and not as ‘buoyant’ as 2007 where 704 strata office were transacted in the year– record high so far.

Transaction value

In terms of the total value of strata offices transacted in each year, 2011 has seen about S$1.13 bil of strata offices that were transacted, 3.4% higher than S$1.10 bil of strata office transacted in 2010.
On top of increased sales activity, the increase in value of strata offices transacted in the 2011 was partly due to a run up in prices of strata offices in 2011.

In 2011, strata office prices increased 7% to 12%, depending on the property’s specifics suchas location, condition, size and configuration of the unit.

“The continued capital appreciation was in response to fairly sound economic fundamentals. Investors were overall confident of the potential of strata office units where businesses were generally performing well before the pronouncement of the US and EU economic crisis in 2H 2011,” says Mr. Ong.
International Plaza reported the most number of strata offices transacted at 58 units, followed by the Central at 49, and the Adelphi at 36.

What to Expect in 2012? Here’s from Mr. Ong:

Although strata offices should see continued encouraging investor interest, it is set to moderate, in sync with economic slowdown in Singapore and more subdued overall property sentiments. While strata offices are considered different property market from the single owner office building market as the occupant profile are different, the economic slowdown can affect both large, international companies and small businesses, especially given that the economic moderation is expected to be fairly broad based. As a number of smaller businesses which are occupiers in strata office buildings depend on larger organizations for businesses, the business challenges faced by the larger companies leading to cautiousness and cost cuttings can impact the bottom line of smaller companies. Potential buyers of strata offices should critically examine the underlying tenant demand, which can also be fairly building specific. Some strata office buildings will favor businesses of selected trades or industries and buyers keen in properties in the subject building should strive to have understanding of the business performance of such industry clusters so as to understand the strength of the tenant demand base.
 

Also, some strata office buildings will have complementary retail use which can either favour or affect tenants’ desirability of the offices. Nevertheless, the prospects for strata offices are overall positive in 2012 albeit an expected moderation in buying interest in so long as the US economic issues remain unsolved and linger around the rest of the world. With exuberance tapering off in the residential sector, price increases may soon become a thing of the past. However, investors may continually shun residential properties, particularly for foreigners and some Permanent Reisdents who have to pay Additional Buyers’ Stamp Duty. The overall outlook for strata office is cautiously optimistic, underpinned by broad based moderation in property sentiments but limited such supply.