The renewed focus on Singapore’s office investment market

Pockets of resilience and opportunities for freehold offices.

September 04, 2023

The fast sell-out at record prices of all 15 strata-office floors in the newly launched freehold project, Solitaire on Cecil, stands out against a subdued investment sales market in Singapore in 1H23.

Major buyers were reportedly ultra-high-net-worth individuals (UHNWI) and family offices. Indeed, this group of investors has driven Singapore’s office investment sales market in recent times. Their long-term investment horizon and goal of wealth preservation have enabled them to look past current negative yield spreads for office assets and take advantage of the recent increase in freehold acquisition opportunities in the market.

These active acquisitions contributed to the total freehold strata office sales value surging by 91% from SGD 197 million in 2020 to SGD 377 million in 2022. The sale value of SGD 385 million in 1H23 has already surpassed full-year 2022.

Figure 1: Transaction Value of Freehold Strata Office Units
^Freehold properties include freehold and 999-year tenure

Source: REALIS, JLL Research

Demand for high-quality freehold strata offices should endure for the following reasons:

1. Limited supply

There is a limited supply of freehold strata offices in land-scarce Singapore. Solitaire on Cecil was the only freehold strata office development to be launched for sale in the CBD in the last seven years, following Crown@Robinson in 2015 and Oxley Tower in 2012. The market may have to wait years before the next freehold strata office sale launches.

A newly enacted regulation in March 2022 banned individual strata subdivision of the commercial components in standalone or mixed-use developments within designated zones in the Central Area. This would suppress, if not reduce, the supply of freehold strata offices and underpin capital appreciation, further increasing the appeal of the asset class for long-term investors.

2. Growing pool of family offices and UHNWI

Singapore’s efforts to strengthen its status as a wealth hub have borne fruit. Foreign wealth inflow into the city-state has grown steadily in recent years, supported by attractive fund management tax incentive schemes and flexible fund structures. According to the Monetary Authority of Singapore, the number of Single Family Offices with tax incentives grew from 400 in 2020 to about 1,100 in 2022. This trend should continue and would support demand for strata offices, with some utilising the space for their business operations.

3. Policy changes diverting investor interest

Recent policy changes include the doubling of the Additional Buyers Stamp Duties for foreign purchases of residential properties to 60% with effect from 27 April 2023, as well as the requirement for any foreign buyer acquiring an interest in a piece of land zoned or property permitted for 'Commercial & Residential' use to apply for approval under the Residential Property Act. These policy changes could divert some investor interest from the residential and shophouses (zoned for Commercial & Residential use) markets to strata offices.

Embracing long-term opportunities

Riding on the market buzz for freehold properties, rare en bloc developments below the SGD 500 million ticket size, such as VisionCrest Commercial, have recently been put on the market for sale. UHNWI and family offices can be expected to look beyond strata offices to these en bloc acquisition opportunities.