Prices of resale strata offices surge

Limited supply of new space forces buyers to turn to older developments

Published on Oct 03, 2012

By Esther Teo, Property Reporter

PRICES of resale strata offices surged in the third quarter, as a shortage of new space led buyers to look at older developments.

There was a similar trend in the number of transactions, with new-office sales falling as a share of completed deals.

There was much hype in the first half of the year over new strata-titled office developments such as PS100, Oxley Tower and Eon Shenton, but their market share retreated in the third quarter, according to a Knight Frank report.

New strata-titled offices made up 72 per cent of the 686 transactions in the first six months of the year, but that fell to just 21 per cent in the three months to Sept 30, when total sales of 97 offices were recorded.

Knight Frank research head Png Poh Soon noted that this was largely due to the limited supply of new office space following the initial high sales activity of new projects in the first six months.

International Plaza and The Central had the highest number of recorded transactions in the resale market, with both notching up healthy price gains in the third quarter.

There were 11 sales at International Plaza in the second quarter and eight in the third quarter.

The average unit price in the building increased by 11 per cent from the second quarter to $1,866 per sq ft (psf) in the third quarter.

The rise was a more modest 6.5 per cent when the sale prices of similarly sized offices were compared.

The Central recorded around 15 transactions in both the second and third quarters.

Average prices rose by 12.4 per cent to $2,440 psf from the second to the third quarter, and again, when the sales of similarly sized units were compared, the average price increase moderated to 4.2 per cent.

Mr Png noted that interest generated from new developments has led to a spillover effect that has pulled up resale prices.

"There is (also) a diversion of interest to the resale market due to high prices of new developments and limited number of available units for sale in the third quarter," he said.

New quantitative easing measures in the United States are expected to fuel Singapore's asset price inflation as well, he noted.

This, combined with persistently low interest rates, might lead to increased interest in real estate from cash-rich investors, particularly for commercial property as a hedge against inflation.

"However, actual demand for office space is waning, with the rental market staying relatively flat in the third quarter. Achievable yields will start to decline as prices continue to increase," he said.

Knight Frank noted new strata developments in the pipeline have already been sold, so there will still be slow sales, given the lack of supply.

"We foresee prices of strata offices to moderate towards end-2012, with sustained interest for resale office spaces at prime locations," the report said. "Overall average prices for strata offices in the resale market could increase by 4 to 5 per cent in the fourth quarter, which would translate to a 14 to 15 per cent increase for the whole of 2012."

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