reporter2
07-06-22, 09:51
Strata ownership of commercial property may be slowly dying
Jun 06, 2022
The landscape has improved substantially for Singapore’s commercial property landlords in the year to date.
For much of 2020 and 2021, many office buildings were largely empty as workers mainly worked from home. But workers have been heading back to offices as all employees can return to the workplace effective Apr 26, 2022.
With the removal of limits on group sizes and a requirement for safe distancing, malls are seeing shopper traffic pick-up.
However, gains from Singapore’s transition to living with Covid may be unevenly shared among commercial landlords amid a flight to quality.
Flight to quality
Office workers may be heading back to the physical office to build their social capital and better collaborate with colleagues. But, they may only want to be in buildings that prioritise public health and safety, for example by ensuring high air quality.
Also, office workers may desire to be in developments that feature lots of greenery to help improve mental wellness, and minimise environmental footprint by adopting technologies to conserve water and energy.
Shoppers may opt to visit malls with good ventilation and open spaces. Retail store operators may choose landlords who can position their malls effectively and reach out to customers via digital platforms.
Major commercial landlords are meeting the needs of users. CapitaLand Integrated Commercial Trust’s malls can leverage CapitaLand’s CapitaStar platform, which is an omnichannel rewards platform for shoppers, with over 1.27 million members, to support retailers.
Commercial real estate investment trusts and major groups are rejuvenating old assets or bringing new best-in-class stock to the market. In late May, Singapore Land Group announced plans to start redeveloping Clifford Centre in Raffles Place in early 2023, subject to getting the necessary approvals.
Against the above backdrop, strata owners of commercial units could struggle. Individual owners of shop lots and office units in dated buildings may find it difficult to agree on capital expenditure to install leading air filtration and purification systems. Can strata owners of shops collaborate to improve the tenancy mix or digital outreach efforts?
Investor interest in strata space
Given the lure of owning hard assets in safe haven Singapore, there is investor demand for strata commercial property.
The ninth floor of Samsung Hub, which is a 999-year leasehold office building in Raffles Place, sold for nearly S$53.1 million or S$4,050 per square foot (psf) in 2021.
In 2021, Suntec Reit sold a portfolio of Suntec City Office units, for S$197 million, which was at a premium of 8.9 per cent over the valuation
However, many strata-owned buildings will struggle to compete with commercial buildings owned by single owners, who are spending to meet the needs of tenants living with endemic Covid-19.
While abundant liquidity lends support to capital values of older strata-owned buildings, liquidity may mean that there is scant opportunity for investors to own strata space in new commercial developments going forward.
In the 1970s, Far East Organization developed Far East Shopping Centre and Lucky Plaza, which are strata-owned buildings, in Orchard Road.
People’s Park Centre in Outram was built on a site with an original land lease of 99 years that was sold in the early days of the government land sales programme. Completed in the early 1970s, this development is owned by strata-title owners of its various shop, office and residential units
Financially strong groups
A few decades back, many developers carved out office and retail units to sell to individual owners in order to help recoup their capital outlay.
Today, the story is different. Amid gains accruing to the property sector from Singapore’s economic growth, financially strong local developers have emerged. These groups are able to hold on to commercial projects post-completion, and keen to earn recurring income from leasing out the space.
The emergence of Reits (real estate investment trusts) since 2002 also provides an avenue for developers to monetise part of a chunky commercial building, without losing control over the asset. A developer can sell its 100 per cent owned commercial property to a Reit, where it owns 100 per cent of the manager and 20 per cent or more of the units in the trust.
Various Reits, private real estate funds, sovereign wealth funds, insurance firms and family offices are seeking premier commercial buildings in Singapore. Some of these buyers are unfazed by the large sums needed to buy such buildings here, if only the properties were available for sale.
While there are new areas of investment to consider, such as cryptocurrencies and funds playing on mega themes such as artificial intelligence or digital innovation, the appeal of physical property in safe haven Singapore will likely stay strong.
Buyers of commercial properties do not need to incur hefty additional buyer’s stamp duty, which may apply to buyers of homes. However, investments in strata commercial units will not pay off if the units cannot compete in the leasing market. Also, there may be scarce opportunity for investors to buy strata-titled commercial units going forward.
Gradually, the current crop of commercial properties held under strata-ownership of multiple individual owners may disappear. As owners of strata-owned commercial buildings struggle in securing tenants, some may pursue an exit via the collective sale route.
https://i.imgur.com/zWuKNPN.png
Strata-owned commercial building Sultan Plaza, located along Jalan Sultan, was relaunched for sale on May 31, 2022, with a reserve price of S$360 million
Earlier this year, strata-owned Tanglin Shopping Centre was sold for S$868 million to a privately held entity of the Tanoto family.
In early May, the marketing agent announced the S$700 million sale of strata-owned Golden Mile Complex in Beach Road to a consortium comprising Far East Organization, Perennial Holdings and Sino Land.
In 2021, collective sales of strata-owned commercial buildings Peace Centre/Peace Mansion and Maxwell House were successful.
In March, the Urban Redevelopment Authority said commercial developments as well as the commercial components of mixed-use developments located in prominent areas and routes in Singapore’s Central Area are no longer allowed to be strata subdivided into individual units.
Individual investors who want exposure to Singapore commercial property may have to look to invest in Reits, which own commercial properties. As for individuals who want to own commercial space for their own use, such an option may not be easily available.
Expect the big players, armed with management capabilities and access to capital, to dominate Singapore’s commercial property space, by providing products that meet the needs of picky office workers and shoppers.
https://www.businesstimes.com.sg/opinion/strata-ownership-of-commercial-property-may-be-slowly-dying
Jun 06, 2022
The landscape has improved substantially for Singapore’s commercial property landlords in the year to date.
For much of 2020 and 2021, many office buildings were largely empty as workers mainly worked from home. But workers have been heading back to offices as all employees can return to the workplace effective Apr 26, 2022.
With the removal of limits on group sizes and a requirement for safe distancing, malls are seeing shopper traffic pick-up.
However, gains from Singapore’s transition to living with Covid may be unevenly shared among commercial landlords amid a flight to quality.
Flight to quality
Office workers may be heading back to the physical office to build their social capital and better collaborate with colleagues. But, they may only want to be in buildings that prioritise public health and safety, for example by ensuring high air quality.
Also, office workers may desire to be in developments that feature lots of greenery to help improve mental wellness, and minimise environmental footprint by adopting technologies to conserve water and energy.
Shoppers may opt to visit malls with good ventilation and open spaces. Retail store operators may choose landlords who can position their malls effectively and reach out to customers via digital platforms.
Major commercial landlords are meeting the needs of users. CapitaLand Integrated Commercial Trust’s malls can leverage CapitaLand’s CapitaStar platform, which is an omnichannel rewards platform for shoppers, with over 1.27 million members, to support retailers.
Commercial real estate investment trusts and major groups are rejuvenating old assets or bringing new best-in-class stock to the market. In late May, Singapore Land Group announced plans to start redeveloping Clifford Centre in Raffles Place in early 2023, subject to getting the necessary approvals.
Against the above backdrop, strata owners of commercial units could struggle. Individual owners of shop lots and office units in dated buildings may find it difficult to agree on capital expenditure to install leading air filtration and purification systems. Can strata owners of shops collaborate to improve the tenancy mix or digital outreach efforts?
Investor interest in strata space
Given the lure of owning hard assets in safe haven Singapore, there is investor demand for strata commercial property.
The ninth floor of Samsung Hub, which is a 999-year leasehold office building in Raffles Place, sold for nearly S$53.1 million or S$4,050 per square foot (psf) in 2021.
In 2021, Suntec Reit sold a portfolio of Suntec City Office units, for S$197 million, which was at a premium of 8.9 per cent over the valuation
However, many strata-owned buildings will struggle to compete with commercial buildings owned by single owners, who are spending to meet the needs of tenants living with endemic Covid-19.
While abundant liquidity lends support to capital values of older strata-owned buildings, liquidity may mean that there is scant opportunity for investors to own strata space in new commercial developments going forward.
In the 1970s, Far East Organization developed Far East Shopping Centre and Lucky Plaza, which are strata-owned buildings, in Orchard Road.
People’s Park Centre in Outram was built on a site with an original land lease of 99 years that was sold in the early days of the government land sales programme. Completed in the early 1970s, this development is owned by strata-title owners of its various shop, office and residential units
Financially strong groups
A few decades back, many developers carved out office and retail units to sell to individual owners in order to help recoup their capital outlay.
Today, the story is different. Amid gains accruing to the property sector from Singapore’s economic growth, financially strong local developers have emerged. These groups are able to hold on to commercial projects post-completion, and keen to earn recurring income from leasing out the space.
The emergence of Reits (real estate investment trusts) since 2002 also provides an avenue for developers to monetise part of a chunky commercial building, without losing control over the asset. A developer can sell its 100 per cent owned commercial property to a Reit, where it owns 100 per cent of the manager and 20 per cent or more of the units in the trust.
Various Reits, private real estate funds, sovereign wealth funds, insurance firms and family offices are seeking premier commercial buildings in Singapore. Some of these buyers are unfazed by the large sums needed to buy such buildings here, if only the properties were available for sale.
While there are new areas of investment to consider, such as cryptocurrencies and funds playing on mega themes such as artificial intelligence or digital innovation, the appeal of physical property in safe haven Singapore will likely stay strong.
Buyers of commercial properties do not need to incur hefty additional buyer’s stamp duty, which may apply to buyers of homes. However, investments in strata commercial units will not pay off if the units cannot compete in the leasing market. Also, there may be scarce opportunity for investors to buy strata-titled commercial units going forward.
Gradually, the current crop of commercial properties held under strata-ownership of multiple individual owners may disappear. As owners of strata-owned commercial buildings struggle in securing tenants, some may pursue an exit via the collective sale route.
https://i.imgur.com/zWuKNPN.png
Strata-owned commercial building Sultan Plaza, located along Jalan Sultan, was relaunched for sale on May 31, 2022, with a reserve price of S$360 million
Earlier this year, strata-owned Tanglin Shopping Centre was sold for S$868 million to a privately held entity of the Tanoto family.
In early May, the marketing agent announced the S$700 million sale of strata-owned Golden Mile Complex in Beach Road to a consortium comprising Far East Organization, Perennial Holdings and Sino Land.
In 2021, collective sales of strata-owned commercial buildings Peace Centre/Peace Mansion and Maxwell House were successful.
In March, the Urban Redevelopment Authority said commercial developments as well as the commercial components of mixed-use developments located in prominent areas and routes in Singapore’s Central Area are no longer allowed to be strata subdivided into individual units.
Individual investors who want exposure to Singapore commercial property may have to look to invest in Reits, which own commercial properties. As for individuals who want to own commercial space for their own use, such an option may not be easily available.
Expect the big players, armed with management capabilities and access to capital, to dominate Singapore’s commercial property space, by providing products that meet the needs of picky office workers and shoppers.
https://www.businesstimes.com.sg/opinion/strata-ownership-of-commercial-property-may-be-slowly-dying