Shophouse Property Report Q2 2021
Overview
Despite a rise in community COVID-19 cases and tightened safe management measures from May 16 to June 13, the shophouse market continued to thrive in Q2 2021, extending the strong recovery seen in recent quarters. Sales volume and transaction value in Q2 2021 have surpassed pre-pandemic levels, indicating stable growth in the shophouse market.
Sales in Q2 2021
- Shophouse sales increased in Q2 2021 due to improved market sentiment and a brightening economic outlook for Singapore.
- According to URA caveats, there were 69 shophouse transactions in Q2 2021, a 21.1% increase from the 57 transactions in Q1 2021. The sales volume in Q2 2021 was one of the best-performing quarters in recent years. Year-on-year, shophouse sales surged by 300% in Q2 2021.
- In the first half of 2021, the total transaction volume of shophouses was 126 units, already reaching 87% of the full-year volume for 2020 (145 units).
- The total transaction value in Q2 2021 grew by 41.5% quarter-on-quarter to S$517 million. This brought the total transaction value for the first half of 2021 to S$882.5 million, accounting for about 97% of the S$912.7 million transacted in 2020.
- Shophouse transactions in 2021 are on track to replicate the sales boom of 2018.
Transaction Hotspots in Q2 2021
- With improving investment sentiment, more sellers, especially those who had previously withdrawn their properties from the market, began to list their properties for sale, with some raising their asking prices.
- Of the 69 shophouse transactions in Q2 2021, most were located in the city and city-fringe areas. District 8 (Little India) had the highest sales volume with 14 shophouses, followed by District 1 (Raffles Place, Cecil, Marina, People’s Park) with 12 units and District 2 (Anson, Tanjong Pagar) with 10 units.
- In terms of transaction value, District 1 was far ahead, achieving transactions worth S$141.4 million in Q2 2021.
Top 10 Shophouse Transactions in Q2 2021
- Based on caveats, the highest-value transaction in Q2 2021 was for two adjacent shophouses on New Bridge Road, sold for S$28 million (S$11,018 per square foot on land area).
- Of the top 10 highest-value transactions this quarter, 7 were located in Districts 1 and 2, reflecting the continued interest of buyers in prime shophouses in the central area.
- Several transactions on Stanley Street within the Outram Planning Area boosted the total transaction value for District 1.
Shophouse Prices
- Given the optimistic economic outlook and tight supply of shophouses (especially in the city center), investor demand is expected to remain active, which will in turn support shophouse price growth.
- In Q2 2021, the average transacted unit price for freehold shophouses was approximately S$4,135* per square foot on land area, an increase of 12.3% from S$3,682 psf in the previous quarter. Compared to the same period last year, the average unit price for freehold shophouses rose by 93.7% from S$2,135 psf in Q2 2020, which coincided with the Circuit Breaker period.
- As for 99-year leasehold shophouses, the average transacted unit price in Q2 2021 was S$4,633* per square foot on land area, about a 3.4% increase from S$4,481 psf in Q1 2021.
- Of the 69 shophouses sold in Q2 2021, about 37.7% (26 transactions) were priced between S$5 million and S$10 million, surpassing the 18 units in the previous quarter.
- According to caveats, there were 17 high-value transactions exceeding S$10 million in Q2 2021, compared to 11 such transactions in Q1 2021.
Leasing
- Despite Singapore entering Phase 2 Heightened Alert (P2HA) with stricter safe management measures from May 16 to June 13, leasing activity saw a slight improvement in Q2 2021.
- There were 894 lease agreements in Q2 2021, a 6.7% increase from 838 contracts in the previous quarter. Compared to the 579 contracts in Q2 2020, leasing demand grew significantly by 54.4% year-on-year. Leasing activity was at its lowest in Q2 2020 due to the pandemic outbreak and the implementation of the Circuit Breaker.
- Meanwhile, the total rental contract value in Q2 2021 increased by 3.5% quarter-on-quarter to S$7.58 million.
Demand Drivers and Market Outlook
Based on market observations, the demand for shophouses will remain strong as investors continue to seek value-added assets that can drive capital growth and preserve value. Shophouses in Singapore will continue to be popular with investors due to their extremely limited supply and tightly held nature.
As Singapore re-entered P2HA from July 22 to August 18, stricter measures (including a ban on dine-in and a default work-from-home arrangement) will impact the service sector, especially F&B and retail. Consequently, tenants operating in shophouses may face some short-term uncertainty.
However, shophouses as an asset class remain defensive. With the economic recovery and a glimmer of hope for further reopening of business and tourism as the national vaccination rate rises in the coming months, the shophouse market is expected to perform well in 2021.
Office Property Report Q2 2021
Overview
As Singapore’s economy recovered and trade prospects improved, business confidence and the employment market outlook were restored, leading to a stable performance in the office property market in Q2 2021. According to advance estimates for Gross Domestic Product (GDP), Singapore’s economy grew by 14.3% year-on-year in Q2 2021, with growth across all sectors. The national economy is projected to grow by 4% to 6% this year.
Despite the tightening of safe management restrictions in May and June, which kept work-from-home as the default arrangement, the office market remained resilient in Q2 2021. While office sales slowed down from the stellar performance of the previous quarter, leasing activity has risen to pre-COVID-19 pandemic levels of 2019.
Singapore’s roadmap for further reopening the economy and the progressive rollout of the national vaccination program have generally provided more certainty for businesses and investors. However, with Singapore re-entering Phase 2 Heightened Alert (P2HA) from July 22 to August 18, the recovery of the office market may be temporarily halted as tenants continue to assess their space requirements.
Sales Transactions and Prices
- According to the URA office price index, office prices rose by 0.9% quarter-on-quarter in Q2 2021, reversing the 2.7% decline from the previous quarter. This growth can be attributed to price increases in the Central Region, where some prime office assets were sold. This reflects an improvement in the overall business outlook and investor confidence.
- Although office prices increased, the total sales value of office properties in Q2 2021 fell to S$730.8 million, less than half of the transaction value in Q1 2021, which reached a staggering S$1.77 billion.
- However, based on submitted caveats, sales value more than tripled year-on-year compared to the S$172 million achieved in Q2 2020.
- There were 82 transactions in Q2 2021, a year-on-year increase of 272.7%, but slightly lower than the 84 transactions in Q1 2021.
- The highlight of office sales in the second quarter was the successful collective sale of Maxwell House for S$276.8 million. Maxwell House was acquired by a consortium comprising subsidiaries of SingHaiyi Group, Chip Eng Seng, and Hong Kong-listed Chuan Holdings. Maxwell House is a 13-story commercial building that will be redeveloped into a mixed-use development.
- Another notable transaction in Q2 2021 was the sale of office space on the ninth floor of Samsung Hub for S$53.1 million, with a strata area of 13,110 square feet. The price per square foot of S$4,050 set a new record for office unit prices in the Raffles Place financial district, surpassing the previous record of S$3,800 psf set in February 2020 (for an office space on the 11th floor of the same building).
- The buyer of this office space was property and construction group Lee Kim Tah Holdings. It was reported that the group intends to move out of its office at Certis Cisco Centre, which was sold in March this year and is slated for redevelopment.
Leasing and Leasing Trends
- The URA office rental index showed that rents increased by 1.3% in Q2 2021, lower than the 3.3% rise in the previous quarter.
- The number of office lease contracts continued to increase in Q2 2021. According to Realis data, there were 1,467 leases this quarter, a year-on-year increase of 24.2% and a quarter-on-quarter increase of 6.3%.
- The total lease value in Q2 2021 grew by 15.6% year-on-year, from nearly S$25.3 million to S$29.2 million. The overall lease value for this quarter increased by 27.5% quarter-on-quarter from S$22.9 million in Q1 2021.
- In the first half of 2021, the drivers of office demand in the Central Business District (CBD) were technology and financial sector players, including financial institutions and investment funds. Many have taken up space previously occupied by banks, which continue to rationalize their office footprints.
- A “flight to quality” trend emerged in Q2 2021: tenants are taking advantage of the current situation to negotiate more favorable terms and lock in lower rents during this period, allowing them to move to better locations or higher-specification buildings.
- Some companies may also be preparing to expand their operations in readiness for the economic recovery.
Office Vacancy
- The latest URA data shows that as remote work continues to dominate work patterns, the island-wide office space vacancy rate has risen further. As of Q2 2021, the vacancy rate increased to 12.6% from 11.9% in the previous quarter.
- URA data shows that as of Q2 2021, the vacant private sector office space island-wide was 939,000 square meters (net), up from 884,000 square meters in Q1 2021. Most of the vacant space in the second quarter was in the city center, totaling 491,000 square meters.
- The decentralization of workplaces has also contributed to the increase in vacant office space in the CBD. Many tenants are looking for alternatives outside the CBD, such as office buildings and business parks in other regions, including one-north, Alexandra, or Harbourfront, which offer attractive rents and equally good, if not better, space specifications.
- According to URA data, the amount of occupied office space decreased by 23,000 square meters (net) in Q2 2021, following a decrease of 19,000 square meters (net) in Q1 2021.
- In terms of supply, the pipeline supply measured by Gross Floor Area (GFA) was about 697,000 square meters at the end of Q2 2021, compared to 761,000 square meters of GFA in Q1 2021.
- An estimated 70,000 square meters of office space is expected to be completed in the second half of 2021. A notable upcoming development is CapitaSpring in the CBD, which will offer over 24,000 square meters of prime office space. Over 50% of its office space is already pre-committed.
Market Outlook
Recently, the increase in community COVID-19 cases and the emergence of large clusters have led Singapore to re-enter P2HA. The re-implementation of pandemic safety measures may curb the recovery of the office market, as remote work remains the default mode, delaying the return of employees to the workplace.
As tenants review their current leases, vacancy rates may rise in the coming quarters. Tenants with larger office footprints may negotiate to downsize or exit their leases as they reconsider their space needs. Given the uncertainty of the global pandemic, some tenants may adopt a wait-and-see approach to their commercial real estate strategy.
Looking ahead, the office market is expected to bottom out by the end of 2021, while the tight new office supply in the CBD for 2021 and 2022 may provide some support for leasing activity and rents.
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