Government casts a cold eye on commercial sector - shops, office space

The sudden burst of activity in the commercial property sector has caught the government's eye, and indications are that it may extend cooling measures to this sector if transactions rise above what it deems to be the comfort level.

The Urban Redevelopment Authority (URA), responding to queries from The Business Times, said: "We are monitoring the various segments of the property market closely, including the commercial sector. We will introduce measures, if required, to moderate investment demand and prevent overheating in the property market."


The agency added that it would work to ensure that developments do not comprise predominantly small units.

Retail and office spaces have been spared the many rounds of measures to cool the property market. After the seventh round of property cooling measures were unveiled two weeks ago, consultants said they expected interest to shift to commercial property, especially since the latest batch of rules also applied to industrial space.

It is still early days, but their prediction appears to be playing out. Strata offices at Far East Organization's SBF Center on Robinson Road have already drawn keen interest; the launch is expected only next month.

Over at Alexandra Central, a 99-year leasehold, hotel-cum-retail development next to Ikea, 114 of the 115 strata retail units launched on Monday were sold, with ground-floor space going for more than $7,000 per square foot (psf). The property was so sought after that a shop unit on the third storey attracted more than 150 interested buyers submitting blank cheques for a ballot.

Overall, it was estimated that at least 20 buyers on average were competing for each unit in the development by Chip Eng Seng.

Market watchers have commented that the prices seem a tad on the high side. As a gauge, strata retail units in Bugis Cube, a freehold development on North Bridge Road, were fetching between $2,900 and $6,900 psf at its launch last year.

It has not escaped notice that the smaller units at Alexandra Central are the ones that have drawn very strong interest. The shop space that pulled in more than 150 prospective buyers, for instance, is believed to be no more than 200 sq ft in size. The smallest unit there takes up 10 square metres (108 sq ft), and the largest, 667 sq m (7,180 sq ft).

Commenting on unit sizes, URA told BT: "We would be concerned if a development comprises predominantly small units, as this may pose problems such as a shortage of parking lots and traffic congestion in the local area.

"For such cases, URA will work with the developer and architect to improve the design and layout, to provide a more diverse range of unit sizes to meet the needs of different users and minimise potential disamenity issues to the surrounding uses." Interest in commercial property had already risen on the back of the previous rounds of cooling measures.

However, market watchers caution against hoping for high yields and price spikes in the commercial market. Investors should moderate their expectations, they say, given that this segment is unlike the industrial market, where prices have been pushed up since 2010 by the rush of investors putting money into these properties. Another reason prices may not run away is the low proportion of strata commercial space available; this will limit its ability to make an impact on pricing in the overall market.

Strata-titled office space accounted for just 18.8 per cent of total gross floor area (GFA) of office space generated from Government Land Sales (GLS) sites sold with an office component between 2010 and last year.

For retail, strata-titled space accounted for just 3.2 per cent of total GFA generated from GLS sites sold with a retail component. This is from the retail component in Alexandra Central.

Source: Business Times –25 January 2013