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AS demand for space moderates amid an uncertain economic outlook, Singapore's strata commercial sector is expected to remain muted in the second half of the year, a biannual research bulletin said.
The Knight Frank report said that overall sale transaction volume of strata-titled office and retail units in the second half of the year looks likely to remain flat at 180 to 220 units, bringing the total transaction volume to about 420 to 470 units for the full year.
Savvy buyers, the global property consultancy said, are less interested in the strata commercial market "as they become cognisant of the high vacancy rates in several recently-completed commercial projects".
The report noted that demand for strata office and retail units was tepid in the first six months of 2015, as sellers' price expectations remained high and with buyers less than upbeat about the market, given the rising stock and vacancy rates in office and retail sector.
"The total debt servicing ratio (TDSR) regulation also continues to put a lid on demand from private individuals. As owners are not expected to reduce price expectations in H2-2015, muted demand in the strata commercial sector is expected to persist."
In the first six months of the year, demand for strata offices weakened with 115 caveats lodged, down 65.4 per cent compared to the same period last year.
Average prices of strata office held firm though, at S$2,536 per square foot (psf) from S$2,330 psf in the second half of 2014.
"The decline in new sale volume is attributed to fewer new strata office project launches. Meanwhile, the fall in demand for resale units is due to the cautious approach from prospective buyers," Knight Frank said, adding that the weak leasing market has resulted in limited gradual improvement in the occupancy of newly completed office projects.
And competition for the same pool of potential tenants has resulted in a price war among owners - rents are observed to have concluded about 10 to 20 per cent lower than the initial asking price.
On the strata retail units side, Knight Frank said that transaction volume for the first half of 2015 fell 52.2 per cent to 119 caveats lodged with no new project launches, from the preceding six months.
"The backdrop for retail segment remains fairly challenging in 2015, with island-wide occupancy rate reaching a new low of 92.8 per cent in the second quarter of 2015. Notably, well managed retail malls are struggling with rising vacant space due to tighter labour policies, threats from e-commerce and the slower global economy," said the consultancy firm.
Many strata retail projects also struggle to remain relevant as most lack consolidated positioning, trade mix, and operations strategy.
Bucking the trend is the shophouse market, which would "skew towards discerning investors with deep pockets" in 2015.
Demand for shophouses will continue to remain stable in the second half of the year, with transaction volume of between 30 and 40 units, the report said.
Mary Sai, executive director and head of commercial sales at Knight Frank, said: "Although some investors have diverted to commercial properties due to the residential cooling measures, many are now feeling the brunt of the TDSR requirements. While commercial properties are showing signs of less resilience, prices of shophouses remain firm in view of the limited supply."