Strata Office Investments Emerge as a Bright Spot in Singapore

H1 2023 volumes on track to match or exceed 2022’s full-year strata office volumes.

Singapore strata offices outperform despite elevated interest rates and a challenging economic backdrop.

Singapore, 6 July 2023 – Large-ticket office property sales have declined significantly while strata office investments in Singapore have bucked the trend, seeing increases in transaction volumes in the last 12 months, the Singapore Strata Office Market report published by CBRE Research revealed. Strata office transactions gained steam in the last few months, as evident from the strong performance at Solitaire on Cecil, the first CBD strata office launch in six years which was fully sold shortly after its launch.

Strata office transaction volumes in H2 2022 saw a 6.3% y-o-y increase, while H1 2023 volumes were on track to match or exceed 2022’s full-year strata office volumes. Though prices hit a brief decline in 2020 due to the pandemic, average prices of strata offices resumed its growth trajectory, resulting in a compound annual growth rate (CAGR) of 2.7% between end-2017 to 2022. 

CBRE Research defines strata offices as buildings sub-divided into individual units or floors for office use, each separately owned by individuals or businesses. This is unlike single-ownership office buildings which are typically owned by developers, corporations and/or institutional funds. 

Tricia Song, CBRE Head of Research, Singapore and Southeast Asia, says “Strata developments may face some negative perception due to maintenance issues from their fragmented ownership. However, strata offices of today have become more sophisticated. There is now widespread awareness on the importance of maintenance in upholding and enhancing asset values, making some of these strata offices attractive choices for occupiers and investors.”

Mr Michael Tay, Head of Capital Markets, adds, “Investors may also favour strata offices for its potential for capital appreciation, due to the scarcity of this asset class. There are also lower upfront taxes compared to residential properties. Their manageable quantum is another plus point, which makes them accessible to a diverse pool of buyers, such as high-net-worth individuals and boutique investors, or corporations purchasing for own use.”

Typically, investment quantum for strata offices can range from as low as $1 mil, to as high as $60 mil for an entire floor. Notable transactions in 2022 include Cortina Holdings Ltd’s purchase of the 4th floor at freehold 15 Scotts for $49.00 mil ($3,568 psf) for owner-occupation, and the acquisition of the 30th floor at 99-year leasehold Suntec City Tower 2 by a Singapore PR of Chinese descent for $38.75 mil ($3,300 psf). 

The report further reveals that location and tenure are other important considerations in the prices of the assets. Assets within the Core CBD generally command a 15 – 23% price premium over strata offices in the Fringe CBD and Decentralised areas. In addition, caveats from 2018 to 2022 showed that freehold strata offices commanded a premium of 20 – 30% over leasehold strata offices in the Core CBD.

On the outlook for strata offices, Ms Song projected, “In the longer term, strata offices could ride on strong underlying office market fundamentals. Supply of strata offices should also remain tight with the recent regulations restricting strata subdivision of commercial space in Central Area. These factors collectively present potential for capital appreciation and wealth preservation over time.”

Mr Tay concluded with advice for investors: “The office strata market remains an investible sub-asset class in the current elevated interest rate environment and challenging economic backdrop. Although supply is very limited, investment opportunities in new locations may be unlocked through existing buildings which already have strata subdivision in place.”