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In A real estate landscape that is as broad and diverse as Singapore, strata commercial properties have carved out a unique niche. This asset class encompasses both strata office and strata retail spaces, that can appeal to the individual investor, institutions, as well as businesses that are owner occupiers.

Strata commercial properties are individually owned units within a larger development, which can include office spaces, retail shops, sometimes combining both in mixed-use buildings.

These buildings are built by developers who subdivide the lettable space into smaller units to be sold to occupiers or investors. Each owner holds a title to their unit and shares ownership of common areas, such as lobbies, elevators, and parking spaces, a concept that is similar to condominiums in Singapore.

This structure allows for greater access from a greater spectrum of affordability levels, particularly in Singapore where commercial assets are generally owned by big market players such as real estate investment trusts (Reits). However, the mixed ownership structure of these buildings can also lead to an inconsistent tenant mix and difficulties in the management of the building.

Diverse investor interest

It is estimated that there are around 200 strata office buildings and 400 strata retail developments across Singapore. The wide variety of investment options – from individual units to whole floors to entire buildings – and ticket sizes makes them compelling to many different types of investors.

Demand for strata commercial properties has been consistent since coming out from the pandemic-led recession. In comparison to other niche asset classes such as shophouses, strata commercial properties may be a less costly alternative with a lower barrier of entry for budding entrepreneurs and retail investors.

In the first nine months of the year, there were a total of 228 strata office transactions amounting to S$841.9 million with an average unit price of S$2,613 per square foot (psf), largely similar to the market characteristics in the years 2021 to 2023.

Interest in strata retail units was more muted in the challenging retail and food & beverage (F&B) operating environment that reined in expansion for some businesses. Strata retail sale transactions tallied 194 units with a total transaction value of S$347.6 million, at an average unit price of S$2,952 psf in the same nine-month period.

The quality of stock varies widely with location, age and building specifications. Often, modern buildings located in the CBD with access to MRT stations transact with a significant premium, while older buildings approaching obsolescence typically sell with a discount factored in.

Post-pandemic, prices have been supported by the limited supply of new product. Currently, new product is supplied to the market with the refurbishment of older buildings and divided on a per-floor basis to be sold. Such examples include VisionCrest and 108 Robinson Road.

Limited future supply

The supply situation for both strata office and retail is unlikely to change dramatically in the foreseeable future, with the Urban Redevelopment Authority (URA) announcing in March 2022 that strata subdivision of commercial developments is no longer allowed at specific areas in the Orchard Road and CBD corridors, as well as the national landmarks around the Padang.

This prohibition can lead owners of older buildings, that are not in the restricted zones but are ripe for refurbishment, to upgrade the building, strata-subdivide their asset(s) and offer such units for sale, such as Solitaire on Cecil. But this has not yet become a trend, with few building owners taking up such an option.

Aged strata-subdivided buildings in the restricted zones could go the collective sales route, eventually being redeveloped into new single-owner properties, further shrinking the pool of strata commercial units in these central locations.

Recent examples of such collective sales include Tanglin Shopping Centre, Ming Arcade, Shenton House and Delfi Orchard. The collective sales potential of these properties can also sometimes be another demand driver for strata properties.

Non-mainstream quirky is not a bad thing

Although not the mainstream commercial property type, strata properties meet specific space needs of niche boutique users in a landscape of glitzy skyscrapers and malls for several key reasons.

Strata commercial properties are versatile, able to accommodate a wide range of uses. Strata office units can serve as offices, medical suites, music schools, training centres, wellness centres, media studios, and training centres. potentially creating a collegiate hive of diversity in an office building where the use can be and is usually homogenous.

Strata retail units can be used for shops, food & beverage, entertainment, health and wellness, sports/exercise hubs, physical and mental therapy outlets, and jamming studios.

This flexibility will likely become more attractive as Singapore matures, and the melting pot of various cultures and a tech-savvy younger generation spawn interest groups that require bespoke space for a wide span of activities.

In the past, strata commercial properties have naturally created a unique identity specifically tied to the building with the gravity to draw its own eclectic crowd.

Golden Mile Complex grew into “Little Thailand”, Sim Lim Square became the location for electronics and other novel forms of gadgetry, Queensway Shopping Centre evolved into the go-to place for sports and recreational gear, and Peninsula Plaza for shoes and musical instrument shops.

Many strata commercial properties are ripe for revival and these spaces can be reimagined to accommodate the growing interests of different demographic groups, as consumer preferences shift and new hobbies and crafts emerge with a need for space. Think creative hubs, wellness centres, yoga studios, art and music studios, learning kitchens.

Although often small, boutique and niche, sometimes understated and overlooked, the versatility of strata office and retail units can provide a wide swath of small and medium offices, shops, eateries, enrichment centres, music schools, activity hubs with the real estate to operate from.

Mary Sai is Executive Director, Capital Markets and Sim Li Wei is Analyst, Research at Knight Frank Singapore