www.shaproperty.com

Sep 17, 2007

Sales of office units jump amid space crunch

By Fiona Chan

SALES of office units have shot up this year in the face of a crunch in office space here.

An impressive $491.79 million worth of single units in larger office buildings has changed hands since January.

This already outstrips the $386.39 million in deals for the whole of last year, according to new figures from property firm CB Richard Ellis (CBRE), which tracked deals above $5 million.

The price of each unit has also surged. Last year, a record 24 office units were sold, but only 19 have been sold so far this year.

This means that, on average, each of the units sold this year is fetching a much higher price than those sold last year.

Compared with earlier years, this year's sales look even more impressive. Only $95.21 million in single office deals were done in 2005, and $8.14 million in 2003, said CBRE.

These standalone office spaces, called strata-titled office units in the property industry, are owned by one-off investors or businesses, as opposed to an office block that belongs to a single owner.

Price rises have been dramatic. In buildings such as Suntec City, the prices of strata-titled office units have trebled over the past 18 months, CBRE data showed.

Demand for office space here has been soaring in recent months, pushing up both sale prices and rental levels, as a shortage of prime office buildings coincides with booming investor and business demand.

Due to the limited supply of buildings in the Central Business District (CBD), investor interest has extended to strata-titled office properties in the fringe areas of the CBD, said Mr Jeremy Lake, CBRE's executive director of investment properties.

'The rising number of strata-titled office transactions is a logical consequence of a tight office rental market,' he said. 'Rather than pay rentals of $12 per sq ft (psf) per month, investors are finding it attractive to buy a unit and cash in on the high rentals.'

The most popular buildings for such deals this year are International Plaza and Suntec City, Mr Lake said.

There were 43 office sales in International Plaza this year, just shy of its 45 deals for the whole of last year.

However, these deals ranged in price from $215,000 to $3.3 million, so they were not captured by CBRE's analysis of strata office deals above $5 million.

In Suntec City Tower One and Two, seven deals had taken place this year, at prices starting from $4.61 million.

Mr Lake also said the prices of units in these buildings had skyrocketed in the past 18 months. At International Plaza, they jumped from $491 psf in January last year to $1,150 psf in July.

In the same period, prices of units in Suntec City Tower One nearly tripled from $850 psf to $2,200 psf.

In Suntec City Tower Two, prices doubled from $1,148 psf in March last year to $2,360 psf last month, a new high for the tower.

'Investors' demand for office units at these buildings has been strong due to the scarcity of this type of medium-sized office space located in the core business districts,' explained Mr Lake.

He suggested that some buyers of these units could be 'small- and medium-sized businesses' whose space needs can be met by small office units, unlike multinational companies, which take up entire floors in a single building.

Other buyers could include investors 'who have pocketed some gains in the stock market and are looking at attractive investment options', Mr Lake said.

He expects the number of strata-titled office deals above $5 million to hit a new record this year.

fiochan@sph.com.sg