Category Archives: Property Investment

Property investment sales surge to 3-year high

It’s been a banner year for big-ticket property transactions of at least S$10 million each.

As at Dec 23, the tally stood at S$22.5 billion – up 31 per cent from 2015′s S$17.2 billion, going by Savills Singapore’s figures.

CBRE and Cushman & Wakefield have similar numbers.

This year’s tally of property investment sales, as these transactions are also known, is the highest in three years and has been supported by two mega deals – BlackRock’s S$3.38 billion sale of Asia Square Tower 1 to Qatar Investment Authority and the government’s S$2.57 billion sale of a white site slated for mostly office use along Central Boulevard to a unit of IOI Properties Group.

CBRE’s data points to S$10.1 billion of office investment sales deals this year (up to Dec 20).

This gave the sector the lion’s share or 44 per cent of overall investment sales.

This was followed by the residential segment, accounting for 33 per cent or S$7.5 billion worth of transactions (supported by the Shunfu Ville and Raintree Gardens collective sales and City Developments’ profit participation securities transaction of the completed Nouvel 18 condo).

“With some key major deals out of the way in 2016, the pipeline for 2017 seems to be a shade lesser,” commented CBRE Research’s head of Singapore and South-East Asia Desmond Sim.

Property pundits say next year’s pipeline of big transactions includes Jurong Point mall and Asia Square Tower 2, each expected to fetch around S$2 billion.

The office and residential sectors will remain key drivers and analysts generally expect the overall investment sales next year to remain in the region of 2016′s level or to soften, citing the rising interest-rate environment and slowing trade in Asia if incoming US president Donald Trump fulfils his promise of pursuing a protectionist stance.

However, Colliers International managing director of Asia capital markets and investment services Terence Tang hazards a guess that 2017′s investment sales will be similar to 2016′s or possibly 10 per cent higher. “Residential will account for a bigger proportion of deals in 2017 than office – the reverse of what we have seen this year – driven by developers’ voracious appetite for replenishment land via both state land tenders and private-sector collective sales.”

Moreover, says Savills Singapore’s managing director and head of investment and residential services Steven Ming, residential developers that face looming sales deadlines stipulated under the government’s Qualifying Certificate conditions will be motivated to divest their unsold inventory through bulk sales of units or structured deals for their projects – to avoid paying hefty penalties to the state.

“Investing in high-end residential properties remains appealing given the probability of investing at below replacement cost,” he noted.

Meanwhile, Colliers’ Mr Tang said the Singapore office sector remains on the maps of global and regional investors because of the high quality of buildings completed over the past decade and the covenant strength of tenants in these developments.

However, further interest-rate hikes are on the cards while office rents and occupancies will continue to come under pressure next year.

“So investors will demand higher yields – but owners may not be willing to let go of their assets at lower prices, at least in the near term,” said Mr Tang.

Cushman & Wakefield Singapore research director Christine Li observes that this mismatch in pricing and yield expectations between buyers and sellers was already evident in office deals this year.

Private-equity funds, which had been the more active buyers of commercial property in the past, took a backseat as a result. “Instead, non-traditional buyers such as the ultra high net worth families and sovereign wealth funds (SWFs) led the buying this year.”

In a similar vein, Savills’s Mr Ming predicts that SWFs and insurance companies are likely to dominate big-ticket office purchases in the next 12 months. “This is because of the expected protracted compressed yield environment which makes them more competitive investors given their lower capital costs, and the continued attraction of Singapore as one of Asia’s safe harbour markets to be invested in.”

As office rents generally are expected to continue softening in 2017 as the sector faces the brunt of an oversupply and a weakened economic outlook, this could draw new capital into the sector in anticipation of lower prices.

“But the resultant intensified buying competition amid a finite saleable inventory will likely keep capital values stable,” suggests Mr Ming.

Both CBRE and Savills expect total investment sales in 2017 to be in the S$18-S$20 billion region – down from this year’s high base, marked by mega deals.

Ms Li of Cushman said the figure could remain in the S$20 billion range.

Mr Tang highlighted that the Chinese government’s general policy to discourage outflow of capital to stem a further fall in the yuan may slow Chinese investment into Singapore real estate.

Further interest-rate hikes are also seen as a dampener on property deals in 2017, which may result in some investors adopting a wait-and-see position, especially if they wish to first see whether Mr Trump will actually implement the protectionist policies he championed during his election campaign.

On the flip side, argues Mr Tang, “Mr Trump’s policies are also expected to create a more inflationary environment – during which typically, people tend to go into real estate for a hedge”.

A weakening Singapore dollar is also expected to attract foreign investors to Singapore properties.

CBRE’s data compiled on Dec 20 showed that so far this year, investment sales of office properties have more than doubled to S$10.1 billion from S$4.2 billion last year.

Residential property deals have expanded 42.7 per cent to S$7.5 billion from S$5.2 billion. Investment sales of industrial property have also climbed 42.8 per cent to S$2.7 billion from S$1.9 billion previously.

On the whole, investment sales that originated from the public sector have dipped 0.7 per cent to S$5.8 billion this year while transactions originating from the private sector have risen 41 per cent to S$17.1 billion, going by CBRE figures.

As a result, the public sector’s share slipped to 25.4 per cent in 2016 from 32.5 per cent last year.

“This was due to a cutback in Government Land Sales sites,” said Mr Sim.

BlackRock eyes more opportunities in Singapore after Asia Square sale

FRESH from selling Asia Square Tower 1 for S$3.4 billion, or around S$2,700 per square foot (psf) on net lettable area (NLA), to Qatar Investment Authority, BlackRock says it is looking at Singapore for other potential property investment opportunities.

“We are looking predominantly at office and retail at the moment. Residential probably has a little bit further to fall because of the taxes (such as the additional buyer’s stamp duty) and the supply implications,” said John Saunders, head of Asia Pacific for BlackRock Real Estate, in an interview with The Business Times on Monday.

BlackRock, the world’s largest money manager, is keen on prime office space in the island’s central business district (CBD).

“In terms of retail, we would consider suburban as well,” Mr Saunders added. In the near term, BlackRock is more likely to buy existing office buildings or retail malls here rather than to embark on a greenfield development.

BlackRock still owns the office and retail space in Asia Square Tower 2, but there is no immediate timeline for its divestment. Tower 2′s occupancy rate is in the mid-70s per cent and BlackRock is close to a couple of big leases which when inked would take the figure close to 90 per cent. The goal would then be to finish leasing the remaining space in Tower 2 during the course of this year, after which the group could possibly look at a sale.

Tower 1, which is being sold, is already 90 per cent leased. However, Google, which reportedly occupies 130,000 sq ft in the building, will exit later this year, to move to Mapletree Business City II.

“There has been quite a lot of interest in the Google space in large part because it is one of the very few new completed buildings where someone can get contiguous multiple floors,” Mr Saunders highlighted.

Besides Singapore, BlackRock is focused on four other major markets in the region – Hong Kong, Australia, China and Japan.

Mr Saunders said: “We are quite active in four of the five. The only one we are waiting because we think it has a bit more downside is the Hong Kong market and that is a function of that you’ve got a slowing China, with the potential for rising rates in the US feeding through a peg currency.”

Property consultants noted that the Singapore office market is reeling from a glut arising from several big completions taking place within the next 12 months – Guoco Tower, Marina One, DUO Tower and 5 Shenton Way.

Cushman & Wakefield Singapore research director Christine Li said the office leasing market faces challenges in the short term due to weak business conditions, with leasing demand impacted by headwinds in the banking, oil and commodities sectors. “The supply overhang of 3.6 million sq ft will likely lead to the Grade A CBD vacancy rate exceeding double digits by the end of the year. Accordingly, Grade A CBD rents are projected to moderate by a further 10-12 per cent in 2016 (after easing 10 per cent in 2015) but stabilise in subsequent years given the significantly reduced supply pipeline in 2017 and 2018.”

Mr Saunders feels the negative press on the Singapore office market is overdone. “. . . if you’ve got a prime, CBD high-quality asset, we are still seeing good demand from both new and existing tenants. We are not really seeing a huge amount of pressure on rents”.

News of BlackRock’s sale of Asia Square Tower 1 to Qatar’s sovereign wealth fund (SWF) confirms reports in The Business Times over the past two weeks.

Asia Square Tower 1, an award-winning landmark office building, offers 43 storeys of space totalling over 1.25 million square feet of NLA. This property has received the US Green Building Council’s Leadership in Energy & Environment Core & Shell Platinum certification. Current tenants in Tower 1 include Citibank, Julius Baer and Marsh & McLennan.

This marks the largest single-tower property transaction in the Asia-Pacific to date, and the second largest single-tower property deal globally, according to data compiled by JLL.

Qatar Investment Authority was set up in 2005 to strengthen the country’s economy by diversifying into new asset classes. The group also owns the landmark Raffles Hotel here through its unit Katara Hospitality.

JLL and CBRE are joint sole advisers for this transaction for BlackRock.

Greg Hyland, head of capital markets, Singapore, at JLL said: “Singapore continues to be an attractive destination for international investors, thanks to its stable political outlook, superior infrastructure and strong economic fundamentals. Following this flagship transaction, we expect there will be increasing investor interest in Singapore prime office stock in the coming months.”

“Looking beyond Singapore, we are seeing a growing demand from global investors looking for major single-asset opportunities in the region such as Asia Square,” he added.

Market watchers highlighted that the announcement of a deal for Asia Square Tower 1 makes it the third big-ticket Singapore office transaction in the past few weeks.

The first was CapitaLand Commercial Trust’s proposed acquisition of the remaining 60 per cent of CapitaGreen. Then came Indonesian tycoon Tahir’s proposed purchase, through listed MYP Ltd, of the 28-storey Straits Trading Building on Battery Road at S$560 million; brokered by Michelle Lek of Quillion Global, the deal translates to a record price of slightly above S$3,520 psf on NLA for the 999-year-leasehold tower.

CBRE Singapore’s executive director of investment properties Jeremy Lake said: “Many investors had concluded that they should leave the Singapore office market alone and only come back next year.

“However, with three significant office investment transactions – especially the Asia Square deal, simply due to its sheer size – institutional investors such as SWFs and insurance companies from around the region and the world may reassess the market. CEOs will ask their organisations: ‘Is this a one-off transaction or are we missing something?’ The pace of leasing activity in new office developments is likely to pick up and embolden people that things are not as bad as they thought.”