Interest picks up in strata offices: Cushman & Wakefield

Source : Business Times – 7 May 2009

Price gap between sellers and buyers also narrows in past few months
THERE has been a pick-up lately in activity and prices in the strata office market, says Cushman & Wakefield Singapore managing director Donald Han.

For instance, a 2,443 sq ft unit on the 38th floor of Suntec Tower 2 sold for $1,780 psf last month – above the recent low of $1,300 psf set in March for the entire 32nd floor of Suntec Tower 1, even after factoring in a 5-10 per cent discount for an entire-floor transaction, according to Mr Han.

At International Plaza in Anson Road, which is another popular location for strata office investors, a 17th level unit changed hands for $1,146 psf in March and a 16th level unit went for $1,100 psf in April – higher than transactions of around $1,000 psf in December last year on the same floors. The gap between sellers’ and buyers’ prices has also narrowed in the past few months.
‘Late last year, after the Lehman fallout, the gap between sellers’ asking prices and bids from buyers was as much as 30 to 40 per cent,’ Mr Han said. ‘This has narrowed to around 5 to 15 per cent today, which is why transactions are happening. Generally, vendors have become more realistic in their pricing.’

The latest transacted price at International Plaza of $1,100 psf is about 26 per cent lower than the level in May last year. ‘The smart money is now looking at compelling price discounts from the peak rather than waiting to buy at the market-bottom,’ Mr Han said. ‘Once you see prices about 30-40 per cent off the peak, it provides compelling reasons to look seriously. Some of those who have bought at Suntec recently may be looking to locate their businesses in these premises, instead of renting.’

Credo Real Estate managing director Karamjit Singh agrees that buying interest in strata offices has picked up, but notes that there are still few transactions.
‘The market is going through a phase in which buyers’ perception is slowly changing,’ he said. ‘Previously they were staying away or offering prices that worked in a huge buffer (against potential price falls). Today, buyers are more confident that the downside is limited, or prepared to stomach further downside as the good properties may not necessarily surface at the absolute bottom of the market.’

Some market watchers say there is liquidity in the marketplace for smaller strata transactions involving investments of under $20 million. ‘One contributing factor is wealth creation from the more positive stock market,’ said Cushman’s Mr Han.