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More interest seen in freehold strata titled retail units, Research

by • August 26, 2019 • Research and AnalysisComments (0)140

A research by Knight Frank Singapore said that the sales of strata titled retail units in Q2 2019 amounted to $130.6 million. Excluding the big-ticket items (more than $100 million) sold in Q1 2019, strata titled retail unit sales increased 105.3% quarter-on-quarter (q-o-q) in Q2 2019. It said that sales in Q1 2019 was boosted due to the sale of Liang Court for $400.0 million.

Increase in transaction activity for strata titled retail units

“There were 63 strata titled retail transactions lodged in Q2 2019, a 50.0% q-o-q increase. There was an increase in transaction activity for freehold strata retail units, with the number of caveats lodged for freehold strata titled retail units rising to 34 transactions in Q2 2019, from 18 transactions in Q1 2019.”

Ms Mary Sai, Knight Franks Singapore’s Executive Director for Investment & Capital Markets, said:“With the returns of residential homes moderated by the higher stamp duties, the retail sector saw more interest among investors, especially the freehold retail units that enjoy good footfall.”

strata titled retail unitsThe report said that in particular, eight transactions were lodged for Far East Plaza amounting to S$12.1 million. The research added that these strata retail units have an average strata area of 494 sq ft and command an average per sq ft pricing of S$4,554.

“6 out of 8 units in Far East Plaza has a price quantum less than $2.0 million. In the previous quarter, only one caveat was lodged for Far East Plaza. The freehold strata-titled retail units were also transacted at higher average unit prices, improving by 22.3% q-o-q to S$3,911 per sq ft in Q2 2019.

“Of the 34 caveats lodged for freehold units, there were 16 caveats (47.1%) lodged in Q2 2019 for units located on the Basement 1 and Level 1, compared to 4 out of 18 (22.2%) caveats lodged in the previous quarter. The 16 caveats commanded an average S$4,127 per sq ft strata area.

“Strata retail units in the Orchard Planning area recorded higher sales volume than the other planning areas in Q2 2019, boosted by the bulk sale of Thong Teck Building, and the sale of multiple units in Far East Plaza.”

Knight Frank said in its report that it envisages the interest in strata titled retail units to remain healthy for the rest of 2019, given the higher cost of acquisition for residential units. Separately, the low interest rate environment is expected to continue as the US looks to cut the Fed interest rate, making investments in strata titled retail units more appealing, it added.

“With a higher stamp duty imposed in the residential sector and an uncertain macroeconomic outlook, investors are looking to restructure their portfolio to optimise returns while managing risks. Freehold strata-titled retail units with excellent accessibility and healthy foot traffic will appeal to investors due to their ability to command stable rental returns.”

Another recent research by CBRE said that retail property landlords may be relenting on rents in favour of higher occupancy. The CBRE report noted that in Q2 2019, URA’s retail property rental index (Central Region) saw its second consecutive quarter of decline.

“Compared to -0.2% q-o-q in the previous quarter, the pace of decline in Q2 became -1.5% q-o-q, dragged down mainly by the Central Area which fell by 1.8% q-o-q, its worst performance in 9 quarters. This is likely due to the poorer performance of secondary floors and buildings as they have been the hardest hit by the slowing retail market.

The report added that there are signs that retail property landlords may be relenting on rents in favour of higher occupancy – given that the island-wide vacancy rate dropped to 7.7% at the end of the second quarter from 8.7% last quarter.

“Going forward, the retail market could be under further pressure as economic uncertainty takes a toll on consumer sentiment and retail spending. The limited upcoming supply remains the saving grace of the market and will help to cushion the pace of rental decline. Rental performance for prime retail space will continue to stay resilient, as demand for such space remains relatively healthy.”

Mr Paul Ho, chief mortgage officer of iCompareloan, commenting on the trend in the retail property segment said, “considering the fact that consumers are cautious and the less than upbeat sentiment caused by the trade war, as well as the threat of a technical recession, it makes good sense for retail property landlords to rethink their pricing strategy.”

“Such pricing re strategy by retail property landlords will ensure that occupancy does not experience a freefall,” he added.

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