Q3 2021 Office Property Report
Overview
In Q3 2021, the Singapore economy continued to recover with an improved global and trade outlook, restoring business confidence and job market prospects. According to advance GDP estimates, the Singapore economy grew by 6.5% year-on-year and 0.8% quarter-on-quarter in Q3 2021, with most sectors showing growth. The national economy is projected to grow by 6% to 7% this year.
The office market stagnated in Q3 2021 due to the re-tightening of safe management measures from July to August and again at the end of September, which led to the majority of workplaces reverting to remote work. While office sales and rents slowed from their strong performance in the first half of the year, market observations indicate that demand for office space remains resilient, with many investors taking the opportunity to acquire prime office assets before the market recovers further.
Singapore’s firm commitment to reopening its economy continues to provide greater certainty for stakeholders. This includes reopening our borders to several countries, allowing more foreign professionals, investors, and companies to enter Singapore, which will boost investment and tenant demand in the office market.
Transaction Volume & Prices
- According to the Urban Redevelopment Authority (URA) office price index, office prices fell by 2.4% quarter-on-quarter in Q3 2021, reversing the 0.9% growth in Q2 2021. The price decline was due to a 3.5% contraction in Central Region prices, while office prices in the city fringe rose by a modest 1.0%.
- Based on caveats lodged, total office sales fell to S$242 million in Q3 2021, less than a third of the S$743 million transacted in Q2 2021. Although the transaction value in the third quarter appears to have declined, some deals, including the former Robinsons Centre, were not included in the caveat data.
- There were a total of 75 sales transactions in Q3 2021, a 44% increase year-on-year, but still lower than the 83 transactions in Q2 2021.
- The highlight of office sales in the third quarter was the sale of the commercial building at 61 Robinson Road by ARA Private Funds to Rivulet Investment for S$422 million in mid-September. A caveat has not yet been lodged for this commercial transaction, but it has pushed the total value of office investment deals this quarter to over S$660 million. This further indicates that investor sentiment and confidence in the office property market remain stable and are growing.
- Another highlight was GB Building at 143 Cecil Street, where multiple strata-titled commercial spaces were sold for S$52.06 million. The sold spaces include the retail podium on the first and second floors and two full-floor office units on the third and eighth floors. The purchase price works out to an average of S$1,675 per square foot. The buyers in this transaction are three corporate entities whose sole shareholder is Dia-Globe (Singapore).
- Another notable transaction was Top Global’s sale of eight strata-titled office units on the sixth and seventh floors of the former Thong Sia Building at 15 Scotts Road for S$31.93 million. The purchase price calculates to an average unit price of S$3,695 per square foot, which is one of the highest transaction prices per square foot for the building. The buyers include various corporate entities and individual investors.
Leasing Overview & Trends
- The URA office rental index showed a 3.5% decline in rents in Q3 2021, reversing the 1.3% growth from the previous quarter.
- The number of office leases in Q3 2021 decreased by 12% quarter-on-quarter. There were a total of 1,296 leases this quarter, while URA’s REALIS data shows a 17.2% year-on-year increase in the number of leases.
- The total lease value in Q3 2021 increased by 7.2% year-on-year, from nearly S$19.5 million to S$27.14 million. The overall lease value contracted by 27.5% year-on-year from S$29.3 million in Q2 2021.
- The main drivers of demand for CBD office space are fintech companies and family offices, including financial institutions and investment funds.
- The “flight-to-quality” trend continued to dominate the market this quarter, with more tenants taking the opportunity to relocate to better locations in prime areas as the office leasing market bottoms out, while securing better rates and lease terms.
- According to market sources, many tenants moved into larger office spaces during this period, while smaller office units saw a decline in popularity. Some cited the need for larger office space to better maintain safe distancing, while other companies expressed the need for more space to facilitate business expansion plans and hire more staff during the economic recovery.
Office Vacancy
- URA’s latest data shows that the island-wide vacancy rate for office space has risen further as remote working continues. As of Q3 2021, the vacancy rate rose to 12.9% from 12.6% in the previous quarter.
- URA data shows that as of Q3 2021, vacant private sector office space island-wide increased to 967,000 square meters (net) from 939,000 square meters in Q2 2021. Most of the vacant space in the third quarter was located in the downtown core area.
- According to URA data, occupied office space decreased by 5,000 square meters (net) in Q3 2021, following a reduction of 23,000 square meters (net) in Q2 2021.
- In terms of office space supply, as of the end of Q3 2021, the total available gross floor area (GFA) was approximately 755,000 square meters, compared to a GFA of 697,000 square meters in Q2 2021.
- The upcoming supply of office space in the near term is relatively manageable and will have little impact on occupancy rates—an estimated 25,000 square meters and 55,000 square meters of office space are expected to be completed in Q4 2021 and 2022, respectively. However, a significant supply of 220,000 square meters and 179,000 square meters is expected to be completed in 2023 and 2024.
Market Outlook
The recent increase in community COVID-19 cases and the emergence of large clusters have led Singapore to enter a “Stabilisation Phase,” which has now been extended to November 21. As remote working is still the default, these measures may limit office leasing activity.
The Vaccinated Travel Lanes (VTL) program, which started on October 13, will help drive up demand for office space as more expatriates and investors can easily enter Singapore. However, the overall impact on the office market may not be significant, as many local investors may turn to other markets, and expatriates working locally may return to their home countries during the festive season.
Office leasing activity is expected to be calm in the coming months, as most tenants are likely to stay put, and with key corporate decision-makers out of the country, it is unlikely that new leases will be signed during the holiday period. This is more likely to happen with the opening of VTLs, as many Singaporeans who have not traveled for a long time will prefer to go on vacation abroad.
Looking ahead, given the limited supply of new Grade A office buildings in the near future and the optimistic economic outlook, senior Singapore real estate agent Jerome Quek expects office prices and rents to bottom out by the end of 2021 and show some signs of recovery in 2022.
Q3 2021 Shophouse Property Report
Overview
After a strong recovery in previous quarters, the shophouse market slowed slightly in Q3 2021, amidst a record high of community COVID-19 cases in the previous quarter and the tightening of safe management measures from July 22 to August 18 and again in late September. In terms of both the number and value of transactions, the shophouse market’s performance in the first nine months of 2021 has surpassed that of 2020 and 2019 and is on track to exceed 2018 levels.
Q3 2021 Transactions
- According to caveat records, there were 63 shophouse transactions in Q3 2021, a 10% decrease from the 70 transactions in Q2 2021. While transactions with lodged caveats have decreased, market observations indicate that investor interest in shophouses has not diminished despite the increase in community COVID-19 cases and tightening of measures, and some shophouse deals this quarter did not have caveats lodged.
- In the first nine months of 2021, the total number of transactions for 190 units has already surpassed the figure for the whole of 2020 (145 units).
- Although the transaction value in Q3 2021 fell by 19.1% quarter-on-quarter to S$422 million, the total transaction value for 2021 has now reached S$1.31 billion, surpassing the transaction values of S$912.7 million in 2020 and S$916 million in 2019.
- Shophouse transactions in 2021 are on track to exceed the rather handsome sales volume of 2018.
Q3 2021 Transaction Hotspots
- Of the 63 shophouse transactions in Q3 2021, the majority were located in the city and city fringe areas. District 8 (Little India) had the highest sales volume with 23 units, followed by District 14 (Geylang, Eunos) and District 15 (Katong, Joo Chiat, Amber Road), with 9 units each.
- In terms of transaction value in Q3 2021, District 8 was far ahead, achieving a transaction value of S$106.5 million.
- Several transactions in the Rochor Planning Area, Desker Road, and the Little India Conservation Area boosted the total transaction value for District 8.
- Since the COVID-19 outbreak, sales and leasing activities in city fringe areas have been a market highlight, as these areas benefit from a larger customer base from nearby residential estates.
Top Shophouse Transactions in Q3 2021
- According to caveats lodged, the highest transaction in Q3 2021 was for two adjoining shophouses along South Bridge Road, sold for S$35 million
(S$14,255 per square foot of land area). - Of the ten highest-value shophouse transactions this quarter, nine were located in Districts 1 and 2, reflecting investors’ continued strong interest in prime shophouses in the central region.
Shophouse Prices
- The average transacted price for freehold shophouses in Q3 2021 was approximately S$3,639* per square foot of land area, a 12% decrease from S$4,135 per square foot in the previous quarter.
- While caveat data shows a price contraction, market sources confirm that the per-square-foot price based on gross floor area (GFA) has remained stable due to strong buyer interest. The decrease in the average price by land area was due to some freehold shophouses sold this quarter having smaller built-up areas, which resulted in a contraction of the average land area price for freehold shophouses.
- For 99-year leasehold shophouses, the average unit price in Q3 2021 was S$6,006* per square foot of land area—an increase of about 35.2% from S$4,444 per square foot in Q2 2021. This sharp increase was due to a higher proportion of prime shophouse transactions this quarter, which pushed up the average unit price for 99-year leasehold shophouses.
- Given the gradual reopening of borders and the tight supply of shophouses (especially in the city center), investor demand will remain strong, which will support shophouse price increases.
- Of the 63 shophouses sold in Q3 2021, about 32% (i.e., 20 transactions) were priced between S$5 million and S$10 million, a slight decrease from the 26 transactions in the previous quarter. According to caveats lodged, high-value transactions over S$10 million also decreased, with 11 such deals in Q3 2021 compared to 17 in the second quarter.
Leasing Overview
- Shophouse leasing activity remained robust in Q3 2021, despite record-high community COVID-19 cases and the subsequent re-imposition of restrictions from July 22 to August 18 and again in late September.
- There were 908 shophouse leases in Q3 2021, a 0.8% increase from the 901 leases in the previous quarter. Compared to the 770 contracts in Q3 2020, leasing demand saw a significant year-on-year growth of 17.9%.
- Meanwhile, the total lease value in Q3 2021 grew by 8.8% quarter-on-quarter to S$8.3 million.
Market Outlook
Singapore re-implemented a new round of restrictions from September 22, with stricter measures (including limits on dining-in and work-from-home as the default), which may affect shophouse tenants in the service industry. This is likely temporary as Singapore gradually eases restrictions. Leasing demand in the remaining months of 2021 and early 2022 will remain stable as tenants gain confidence from the easing of safe management restrictions and the community’s high vaccination rate.
In the fourth quarter and the first half of 2022, senior Singapore real estate agent Jerome Quek expects sales momentum in the shophouse market to gradually strengthen, in sync with the progressive easing of travel restrictions that began on October 13. With the lifting of border restrictions, foreign investors and overseas funds seeking defensive, value-adding assets will drive demand and support shophouse asking prices in the medium term. However, due to the limited supply of shophouses available for sale on the market, sales volume is not expected to increase significantly.
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