Alternative Real Estate Ripe For Picking

Source : The Business Times, April 23, 2008

WITH probably less than 350 completed office and industrial buildings in Singapore available for sale on a strata basis, transaction volumes have been steadily rising with more investors seeing an upside.

In a White Paper, Colliers International notes that since 2006, the strata office sector saw sales transactions rise 59.1 per cent from 2005 levels while the corresponding rise for the strata industrial sector was 49.6 per cent.

By 2007, the office sector chalked up total annual sales of 595 transactions, a 117.2 per cent rise compared with 2005.

The industrial sector, on the other hand, saw 1,227 sales transactions in 2007, up 81.8 per cent from 2005.

While Colliers does say that some of the purchases were by end-users, it also believes that investors were drawn by the attractive net rental yields offered by these properties. This can range between 5 and 7 per cent.

Residential properties, however, offer net yields of 2.5 to 4 per cent.

'Judging from the caveats lodged for office and industrial properties, signs of interest in office and industrial properties started showing as early as 2006 when their capital values were at or close to rock bottom,' added Colliers.

Besides end-users and investors, Colliers believes there were buyers who bought units in ageing developments (particularly offices) with collective sale potential in the hope of reaping a windfall some time in the near future.

Examples of developments which were popular with such investors in the last two years include Textile Centre and Golden Mile Complex, both in the Beach Road area.

'With the office supply crunch likely to persist in the next two years, the industrial sector will continue to enjoy robust spillover demand from the office sector on top of demand from the mainstream manufacturing industry,' added Colliers.

Colliers also highlighted that, compared with the mid-1990s peak, capital values of office and industrial properties as at end-2007 were still some 27.5 per cent and 33.7 per cent lower. 'The sectors, thus, still hold immense upside potential in rents and capital values,' Colliers added.

Colliers said that the bulk of available strata office and industrial properties are likely to be more than 20 years old.

Strata office buildings that have seen high transaction volumes since January 2006 include Chinatown Point, International Plaza and People's Park Centre.

Strata industrial buildings that have seen high transaction volumes include E-Centre @ Redhill, Eunos Technolink and Ubi Tech Park.