SINGAPORE RESEARCH COMMERCIAL SALES

H1 2018 COMMERCIAL SALES MARKET SNAPSHOT

OFFICE The improving office leasing market in H1 2018 has prompted buyers to enter the market, leading to the transaction of several larger- floor plate office units.

RETAIL The older commercial buildings with en-bloc redevelopment potential have attracted opportunistic buyers, leading to more transactions of smaller units at affordable quantum.

SHOP- The market for shophouses HOUSE continued to be active in H1 2018, with funds and foreign buyers snapping up the properties.

IMPROVED OUTLOOK OF SERVICE SECTOR AND UPTREND IN OFFICE RENTS SUPPORTED SALES MOMENTUM OF STRATA- COMMERCIAL PROPERTIES IN H1 2018

MARY SAI EXHIBIT 1 Executive Director & Head, Overview of Caveats Lodged and Transaction Value Strata-Titled Offices, Strata- Commercial Sales Titled Retail, and Shophouses

“With the cooling measures Strata Offices Strata Retail Shophouses in place, investors with H2 2017 New Sale : 22 New Sale: 16 Sub Sale : 1 Sub Sale: 1 deep pockets are likely to Resale : 193 Resale : 99 shift their focus to strata Total Caveats : 216 Total Caveats: 116 Total Caveats: 71 retail and office units, Transaction Value: Transaction Value: Transaction Value: as well as shophouses. S$450.9 mil S$311.5 mil S$493.7 mil Besides the Central Area, H1 2018 New Sale : 9 New Sale: 10 sales in the city fringe area Sub Sale : 1 Sub Sale : 1 are also gaining traction.” Resale : 162 Resale : 122 Total Caveats : 172 Total Caveats : 133 Total Caveats: 83

Transaction Value: Transaction Value: Transaction Value: S$513.4 mil S$188.2 mil S$818.1 mil (+13.8% change) (-39.6% change) (+65.7% change)

Source: REALIS (as at 26 July 2018), Knight Frank Research H1 2018 COMMERCIAL SALES RESEARCH BULLETIN

STRATA OFFICE SECTOR The total value of strata offices transacted went up significantly, despite fewer number of caveats lodged in H1 2018 The total transaction value for the strata office sector rose 13.8% to S$513.4mil in H1 2018 from S$430.9mil H2 2017 driven by several large quantum sales. Conversely, the number of transactions fell by 20.4% to 172 caveats in H1 2018, compared to H2 2017. Despite the interest, the average unit price for strata office sector has remained stable since 2017. The prices for strata titled office units tend to be resilient even in slower market due to its limited supply. The new sale office market remained muted (9 transactions) with no new project launches in the first half of 2018. Nearly all the new sale transactions emanated from Centurium Square and Woods Square, with only one transaction from EON Shenton recorded.

FREEHOLD STRATA OFFICE

Notable increase in the total transaction value for the freehold strata office segment, even as transaction volume and average pricing remained stable in H1 2018

The number of transactions and average pricing for the freehold strata office segment stayed largely unchanged for H1 2018. Conversely, the transaction value of the freehold strata office segment rose 80.3% in H1 2018 to S$167.3 million from S$ 92.8 million in H2 2017. The increase in sales was mainly attributed to the sale of Level 20 of and Level 10 of The Octagon, both of which amounted to S$76.9 million. The number of freehold strata office transacted between S$0.5 million and S$2.0 million account for 68.0% of the total freehold strata office transactions.

EXHIBIT 2 Caveats Lodged and Average Prices of Freehold Strata Office Units

3,500 60 $3,055 3,000 $2,572 50 $2,524 $2,566 $2,516 2,500 40 2,000 $2,210 30 1,500 $2,457 $1,840 $2,256 $2,182 20 1,000

500 10 N C L A S A

0 0 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 CAVEATS LODEDNEW SALE (RHS) CAVEATS LODEDRESALE (RHS) AVERAE PSFNEW SALE (LHS) AVERAE PSFRESALE (LHS)

Source: REALIS (as at 26 July 2018), Knight Frank Research *Freehold refers to properties with freehold tenure or tenure of more than 900 years. **Subsale transactions are not shown. H1 2018 COMMERCIAL SALES RESEARCH BULLETIN SINGAPORE

LEASEHOLD STRATA OFFICE Slowing interest in leasehold strata office units at below S$1 million, seen in H1 2018

The number of leasehold strata offices transacted fell to 122 caveats in H1 2018 from 165 caveats in H2 2017. Notwithstanding the decline in sales, the transaction value of leasehold strata office fell marginally (- 3.4%) to S$346.1 million in H1 2018 to compared to S$358.2 million in H2 2017. The total transaction value was propped up by three large ticket sales, namely two caveats lodged at amounting to S$79.2 million, and another S$25.6 million for the 14 office units at Level 20 of Vision Exchange. The number of leasehold strata offices transacted at below S$1.0 million fell by 33.3% in H1 2018 to 42 caveats. Leasehold strata offices between S$1.0 million and S$2.0 million make up the highest number of transactions (52 caveats) in the leasehold strata office segment during H1 2018.

EXHIBIT 3 Caveats Lodged and Average Prices of Leasehold Strata Office Units

3,000 180 $2,805 $2,094 $2,292 160 2,500 $2,202 $2,053 140 2,000 120 $2,160 $2,032 $2,050 $1,984 $2,009 100 1,500 80 1,000 60 40

500 N C L

A S A 20 0 0 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 CAVEATS LODEDNEW SALE (RHS) CAVEATS LODEDRESALE (RHS) AVERAE PSFNEW SALE (LHS) AVERAE PSFRESALE (LHS)

Source: REALIS (as at 26 July 2018), Knight Frank Research *Leasehold refers to properties with 99-year leasehold tenure. **Subsale transactions are not shown.

BUYER PROFILE AND PRICE QUANTUM

Weaker demand was seen from Singaporeans and Foreigners in the office sector during H1 2018. Correspondingly, the proportion of Companies purchasing office units rose to 60.8% in H1 2018 from 46.8% H2 2017, even though the number of purchases by companies was about the same in both periods. Some fifteen transactions were reportedly transacted at above the S$5.0 million price quantum in H1 2018. Collectively, these transactions summed up to S$290.6 million, which is 48.8% higher from the same category of transactions in H2 2017 (S$195.3 million).

EXHIBIT 4 Office Transactions by price quantum, by proportion (%)

100%

80%

60%

40%

20%

P C L 0% H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 500,000 500,000 TO 999,999 1,000,000 TO 1,999,999 2,000,000 TO 4,999,999 5,000,000

Source: REALIS (as at 26 July 2018), Knight Frank Research H1 2018 COMMERCIAL SALES RESEARCH BULLETIN SINGAPORE

OUTLOOK The recovery in office rents, coupled with the limited supply of strata office units encouraged more large price quantum office transactions seen in H1 2018. This is especially so for companies that want to hedge against the expected increase in rents in the Central Business District due to the limited supply. Separately, investors are attracted by the higher yield, given that prices remained stable. Following a slowdown in the residential market since the announcement of the residential cooling measures in July this year, some individual investors could be diverting their attention back to the commercial market in the later part of the year. There may be opportunistic purchases of smaller office units in office developments that have en-bloc redevelopment potential. Total transaction volume for H2 2018 is projected to range from 180 units to 220 units.

STRATA-TITLED RETAIL SECTOR More opportunistic purchases of small units in developments with en-bloc redevelopment potential in H1 2018

While there were 14.7% more caveats lodged in H1 2018, the total value of transaction amount to only S$188.2 million, which is about 39.6% lower than S$311.5 million in H2 2017. With no new sales retail projects launched in H1 2018, only ten new sales were recorded, and they were largely from City Gate.

FREEHOLD STRATA RETAIL Freehold strata retail units in evergreen projects continue to see sustained demand

There was keen interest in the freehold strata retail segment during the first half of 2018. Evergreen projects, such as , and Sim Lim Towers, continued to see sustained demand during H1 2018. Notable freehold strata retail transactions in H1 2018 included the sale of Level 1 unit at Lucky Plaza (S$9.4 million, or S$18,884 psf) and the Level 1 unit at The 101 along Beach Road (S$7.3 million, S$4,717 psf). Some 44 transactions (61.1%) of the freehold strata retail transactions were between S$0.5 million and S$2.0 million in H1 2018.

EXHIBIT 5 Caveats Lodged and Average Prices of Freehold Strata Retail Units

4,500 $4,282 $4,246 120 4,000 $3,342 100 3,500 $3,191 $2,869 3,000 80 $2,486 2,500 $2,981 $2,958 $3,084 60 2,000 $2,248 1,500 40 1,000 20 N C L A S A 500 0 0 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 CAVEATS LODEDNEW SALE (RHS) CAVEATS LODEDRESALE (RHS) AVERAE PSFNEW SALE (LHS) AVERAE PSFRESALE (LHS)

Source: REALIS (as at 26 July 2018), Knight Frank Research *Freehold refers to properties with freehold tenure or tenure of more than 900 years. **Subsale transactions are not shown. H1 2018 COMMERCIAL SALES RESEARCH BULLETIN SINGAPORE

LEASEHOLD STRATA RETAIL More leasehold strata retail transacted since H2 2017 The proportion of retail units transacted below S$1.0 million accounted for 56.5% of the leasehold retail transactions in H1 2018. Older projects such as the Golden Mile Tower, Golden Mile Complex, High Street Centre and Parklane Shopping Centre saw more units transacting below S$1.0 million since H1 2017.

EXHIBIT 6 Caveats Lodged and Average Prices of Leasehold Strata Retail Units

6,000 70

$5,115 60 5,000 $4,422 $4,064 $3,957 50 4,000 $3,884 $2,991 40 3,000 $2,748 $1,782 30 $1,899 2,000 $1,380 20

1,000 10 N C L A S A

0 0 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 CAVEATS LODEDNEW SALE (RHS) CAVEATS LODEDRESALE (RHS) AVERAE PSFNEW SALE (LHS) AVERAE PSFRESALE (LHS) Source: REALIS (as at 26 July 2018), Knight Frank Research *Leasehold refers to properties with 99-year lease tenure. **Subsale transactions are not shown.

BUYER PROFILE AND PRICE QUANTUM

The proportion of Singaporeans buying into retail units marginally surpassed Companies in H1 2018. Singaporeans have accounted for more than 40% of the buyers in the retail sector since 2017, catching up with Companies. The proportion of retail transactions below S$1.0 million has been gradually increasing since H1 2017.

EXHIBIT 7 Retail Transactions by price quantum, by proportion (%)

100%

80%

60%

40%

20%

P C L 0% H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 500,000 500,000 TO 999,999 1,000,000 TO 1,999,999 2,000,000 TO 4,999,999 5,000,000

Source: REALIS (as at 26 July 2018), Knight Frank Research

OUTLOOK With the recent cooling measures, more opportunistic buyers will perceive that the developers are focusing on commercial developments. Hence, we expect more purchases of smaller units of projects that are reportedly undergoing collective sales. Several projects, such as Goldhill Shopping Centre and , have been put up for en-bloc since H1 2018. H1 2018 COMMERCIAL SALES RESEARCH BULLETIN SINGAPORE

Centrally-located freehold strata retail projects remain well in demand. However, there are signs that the strata retail projects at the Rest of Central Region were gaining traction and we anticipate this to continue. Total transaction volume for H2 2018 is projected to range from 130 units to 150 units.

SHOPHOUSE The market for shophouses was active in H1 2018, with total value of shophouses transacted increasing significantly and several high quantum deals concluded

The total transaction value of shophouses reached a new high of S$818.1 million in H1 2018, compared to the last peak of S$881.0 million in H1 2013. Notable transactions in H1 2018 included the Porcelain Hotel at S$64.8 million (S$469,565 per key), the Hotel Hamilton for S$18.2 million (S$455,000 per key), a row of shophouses along Circular Road (S$45.5 million), and a row of shophouses along Tanjong Pagar (S$23.8 million). Some 71 freehold shophouses, and another 12 leasehold shophouses were transacted in H1 2018. The number of leasehold shophouses transacted has fallen since 2015 (29.5% of the 88 shophouse transactions), to 14.5% in H1 2018. This is because owners of leasehold shophouses tend to hold on to these properties due to yields, which are higher than those of freehold shophouses. The average unit price for leasehold shophouses by land area in H1 2018 was also higher, although this was likely due to the higher gross floor area of the subject properties. Comparing the past transacted prices of the same properties over time, the values have largely stayed unchanged. Companies continued to be the top buyers of shophouses in H1 2018. Private equity funds are attracted to shophouses located within the Central Region, especially if they are on the same row and there is potential to refurbish the shophouses to up the yield. Separately, the shophouses are good assets for wealth preservation. Among the districts, District 8 (Little India) remained the favourite among shophouse buyers since 2016 (Exhibit 9). Close to 76% of the shophouses in District 8 were snapped up by Companies, and the single shophouses transacted in District 8 were priced between S$5.4 million and S$8.5 million in H1 2018. Typically, shophouses located in the Little India area are highly sought after, due to the high footfall, by business owners operating within the same area. Interest in District 15 (Katong, Joo Chiat, Amber Road) has also picked up since the second half of 2017.

EXHIBIT 8 Caveats Lodged and Average Land Prices of Shophouses

90 8,500 $7,275 80 7,500 70 6,500 60 5,500 $4,208 $4,613 $4,437 $2,210 50 4,500 $3,804 40 3,500 $3,835 $3,719 $3,829 30 2,500 $3,228 20 N C L A L A 1,500 10 500 0 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 CAVEATS LODED FH (RHS) CAVEATS LODED LH (RHS) AVERAE PSFFH (LHS) AVERAE PSFLH (LHS)

Source: REALIS (as at 26 July 2018), Knight Frank Research *Freehold refers to properties with freehold tenure or tenure of more than 900 years. **Leasehold refers to properties with 99-year lease tenure. ***Subsale transactions are not shown. H1 2018 COMMERCIAL SALES RESEARCH BULLETIN SINGAPORE

EXHIBIT 9 Top 3 most popular districts based on number of caveats lodged

H1 2016 H2 2016 20 H1 2017 H2 2017 H1 2018

15

10 N U

5

0 D2 D8 D7 D1 D8 D15 D1 D8 D2 D8 D2 D15 D8 D1 D15

Source: REALIS (as at 26 July 2018), Knight Frank Research *Subsale transactions are not shown.

FOR COMMERCIAL SALES OUTLOOK ENQUIRIES, PLEASE CONTACT: Mary Sai Shophouses, especially those conserved, remain one of the most highly sought- Executive Director and Head after asset by boutique funds and private equity firms given its limited supply. Commercial Sales Compared to other type of assets, older shophouses are easier for investors to do 6228 6886 asset enhancement works, and such enhancement will help to uplift yields on a [email protected] longer term. FOR FURTHER INFORMATION, Shophouses located within the Central Business District and areas known for its rich PLEASE CONTACT: heritage, such as Little India and Joo Chiat, remain popular with investors. At the same time, shophouses located alongside areas undergoing rejuvenation are slowly Lee Nai Jia gaining popularity. In the medium term, interest in shophouses around these areas Senior Director and Head Research such as Bugis/Beach Road/North Bridge Road should start picking up. 6228 6878 [email protected]

Wong Shanting Manager Research 6228 7339 [email protected]

Lucy Zhu Analyst Research 6228 6584 [email protected]

© Knight Frank Singapore 2018 This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank Pte Ltd and its subsidiaries for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank Pte Ltd and its subsidiaries in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank Pte Ltd to the form and content within which it appears. Knight Frank Pte Ltd is a private limited company which is incorporated in Singapore with company registration number 198205243Z and CEA licence number L3005536J. Our registered office is at 10 Collyer Quay #08-01 Singapore 049315. For further information about the company, please visit www.knightfrank.com.sg