WHEN it comes to property investments, offices rarely crop up as a viable choice for most people.
But these days, the sector could prove to be a worthwhile choice if you look hard enough.
Property agents say offices - including those in old buildings, so long as they are at favourable locations - are generally commanding stronger rentals. These include the Chinatown area, Shenton Way and the fringe of Orchard Road.
Those who have been following the wider property market will probably know that the premium office market is on a high.
Rentals, particularly for space in the best quality office buildings in Raffles Place, have surged by 34 per cent so far this year, figures from property consultancy Colliers International show.
What is more, they are seen strengthening amid tight supply, at least until the end of the decade when the next big chunk of office space is ready at the Marina Bay Business and Financial Centre.
Average rents for premium office space are now at $7.60 per sq ft (psf) a month, said CB Richard Ellis. The uptrend in prime office rents has spilled over to other areas, where less attractive buildings have also seen rising or stable rentals.
For instance, International Plaza next to Tanjong Pagar MRT station, which will undergo a $15 million makeover, remains popular with investors because of the rental yields. With office units there being traded at $600 psf to $650 psf, and rents steady at $3 psf to $3.50 psf, buyers can easily get a rental yield of 5.5 per cent to 6.5 per cent.
'The buyers of International Plaza are fully yield-driven,'' said Ms Agnes Tay, a director at property consultancy Knight Frank. Considering the building has a remaining lease of 60 years, it will be a risk for the buyers to bank on capital appreciation gains because the value tends to drop with the remaining lease, she said.
Mr Eric Cheng, a senior division director of PropNex, bought a tiny 495 sq ft unit at People's Park Centre recently for $188,000.
He said the building is popular with law and accounting firms and yields can rise up to 8 per cent if he manages to rent it out at $1,300 a month.
Property consultancy Colliers International said it recently sold two 883 sq ft office units at Textile Centre, which is left with 63 years of lease, via private treaty. Transacted at between $220,000 and $240,000, the units will have a potential gross yield of 6 per cent to 7 per cent.
Still, it is not easy to get hold of a suitable property as few prime offices are for sale.
As companies nowadays prefer to lease, rather than own office space, there are also not many new strata-titled offices around. With old buildings, there will be maintenance and upgrading issues.
Also, rents of old buildings may go up but the increase will not be as high as the rental increase in newer buildings, said Mr Colin Tan of property consultancy Chesterton International.
Colliers said only one office unit was auctioned off in the July-September period. That means the total level of transactions is 94 per cent lower than the $6.87 million of sales done in the previous quarter.
The one deal was for a strata-titled office unit at People's Park Centre, which sold for $390,000.
The July-September period follows the July 1 rule change whereby Central Provident Fund savings can no longer be used for the purchase of commercial properties.
Still, auctioneer Grace Ng said in a report: 'The wane is due to an absence of both high-value office space transactions and strata factories for sale at auctions, instead of a drop in demand amid a buoyant office market.'
Market-watchers say some investors may also scout for old strata-titled office buildings with redevelopment potential but these have to be at very good locations or next to MRT stations.
However, the difficulty of a commercial collective sale lies in getting individual owners to agree to the sale, property consultants said.
They said it is more complex than residential collective sales as there could be early lease termination penalties, for instance.
'There is very little chance of a collective sale unless the price runs up faster than businesses have time to refinance their properties,' said Mr Tan. An option is to buy and keep offices at Suntec City because the buyer reaps the benefits of a well-maintained development and favourable rents, he said.
'My advice would be to look for developments where the ownership is not too fragmented or where there are two to three substantial stakeholders,' he added. 'That way, you'll know that someone is always reviewing their portfolio and yours as well.' Because of the limited supply of strata-titled offices for sale and the risks involved, retail investors may be better off putting their money into office real estate investment trusts if they are keen to have a foot in the rising sector, some property consultants said.
'They are much safer and you'll probably get better returns,' said Mr Tan.
joyceteo@sph.com.sg
