Singapore
INVESTMENT activity in the property sector is expected to pick up further this year as Singapore re-opens and the economy gets back on its feet, with the office market poised to shine thanks to rental growth and spillover demand following the cooling measures.
Analysts say that Singapore remains an appealing destination in the Asia-Pacific for investors on the back of its safe haven status and pro-business environment. And while interest rates are heading north as central banks seek to subdue inflation, they reckon that the growth in rents could outstrip higher funding costs.
However, analysts also warned that the Russia-Ukraine war remains a downside risk should global growth turn sluggish, which in turn could have a knock-on effect on Singapore's economy.
Tricia Song, CBRE's head of research (Southeast Asia), expects property investment volumes and transactions to increase about 10 per cent this year, due to the recovering economy as well as liquidity in the global capital market. CBRE puts the 2021 tally at S$28.2 billion.
Knight Frank projects that investment sales could hit S$28 billion to S$30 billion in 2022, after Q1 2022 sales doubled year-on-year to S$9.42 billion, boosted by Government Land Sales (GLS) sites and large commercial deals.
Song said: "The office market is expected to outperform in 2022 on the back of rental growth and a more optimistic outlook towards future leasing demand."
And after the latest cooling measures - which have introduced uncertainty over the residential market - "there may be some spillover investor demand into the commercial sector, which is exempted from Additional Buyer's Stamp Duty (ABSD)", Song added. "This could translate into increased interest in office assets and the CBD Incentive Scheme."
In December last year, the government introduced property curbs to cool the blistering residential market, which included a sharp hike in ABSD rates.
Knight Frank's head of research, Leonard Tay, said: "Commercial transactions from mergers and acquisitions as well as institutional capital and private wealth who are also keenly on the lookout for commercial assets, with appetites for investible office and retail buildings, will continue to feature in the investment market throughout 2022."
Citing positives such as stable economic growth and the re-opening of economic activity in Asia, Cushman & Wakefield's head of research, Wong Xian Yang, is sanguine that investment transaction volumes for this year should pip 2021 levels. This is in spite of multiple headwinds such as the cooling measures, rising interest rates and geopolitical tensions.
Wong said: "Stable economic growth bodes well for property demand and supports rental growth. Additionally, as economic uncertainty rises due to geopolitical developments, higher inflation and interest rates, we anticipate a flight to safety toward safe havens. Investors would be incentivised to deploy their capital for wealth preservation and growth."
According to a Q1 2022 report by Knight Frank, investors made a beeline for the commercial sector where deals accounted for about S$5.85 billion of the S$9.42 billion tally.
Big deals in Q1 22 included Lendlease Global Commercial Reit's acquisition of the remaining 68.2 per cent stake in Jem for some S$1.41 billion (S$2,329 per square foot). Other notable deals included the purchase of Grade A-office building 79 Robinson Road by CapitaLand Integrated Commercial Trust (CICT) and CapitaLand Open End Real Estate Fund for S$1.26 billion (S$2,423 psf), and Tanglin Shopping Centre, which was successfully sold to the Tanoto family for S$868 million ($2,769 psf ppr).
According to JLL Research, offices stole the show in Q1 2022 in terms of year-on-year growth as transactions leapt by 113 per cent, although by proportion, office deals accounted for 19 per cent of transactions. JLL defines investment sales as private sector deals worth S$5 million and above as well as all public sector deals.
CBRE saw office and retail transactions gaining traction in Q1 2022 as the underlying leasing markets benefited from the re-opening of borders and resumption of business activity. Song noted that more attractive assets are being put up for sale in line with market recovery as capital values have risen.
Tay Huey Ying, head of research & consultancy at JLL, said: "Investors' interest in CBD office assets is fuelled by the sector's sound demand and supply fundamentals that are supportive of a long runway of growth for rents, and in turn, capital value appreciation."
The republic is seeing demand for office space from the likes of technology and asset management firms as it positions itself as a hub for innovation, technology, finance and sustainability. At the same time, office supply growth is tight in the CBD, owing to a possible lack of state tenders, while existing stock is being removed from the market as building owners redevelop older assets, JLL's Tay highlighted.
She added: "With supply growth lagging behind demand, CBD Grade A rents will be under immense upward pressure, tapering only when new supply outside the CBD, such as in the Jurong Lake District, comes onstream."
Other trends highlighted by analysts include a flight to quality amid a sharpened focus on sustainability as well as the acquisition of underperforming properties for redevelopment - especially in the commercial and industrial markets - which could deliver fatter returns.
Given the fairly positive outlook, owners of commercial buildings are taking a shot - in some cases, another shot - at a sale.
Fifty-storey International Plaza in Tanjong Pagar was relaunched for collective sale via tender with an unchanged reserve price of S$2.7 billion, which translates to a land rate of S$2,448 psf per plot ratio. The development comprises 962 shop units, offices, apartments and a strata-titled carpark.
Not far away, 10-storey Grand Building in Raffles Place was also relaunched for collective sale at the same guide price of S$195 million. The building sits on a 999-year site area of about 5,313 sq ft, with a plot ratio of 15.
Where other sectors are concerned, Knight Frank expects that the easing of travel curbs will revive interest in retail and hospitality assets, while Wong noted that industrial asset sales will remain robust as investors continue to bet on new economy assets.
Meanwhile, there were S$3.08 billion worth of investment sales in the residential market in Q1 2022, higher than the S$2 billion chalked up in Q1 2021, the Knight Frank report showed. This came about as nearly two-thirds of the S$3.08 billion comprised deals for GLS residential sites, which were missing in action a year ago.
At S$208.9 million, sales for luxurious Good Class Bungalows (GCB) - a subset of the residential market - slowed from S$544 million a year ago on the back of a smaller pool of properties for sale, but still notched higher sales vis-avis pre-pandemic times.
In the residential en bloc market, the cooling measures have prompted developers to take a more cautious stance, though given dwindling inventory they are still on the hunt for attractive sites priced in that sweet spot of under S$500 million, analysts said.
Knight Frank's Q1 2022 report also showed that sales of industrial assets slumped from S$1.24 billion a year ago to S$88 million, while the shophouse market picked up with investors' interest piqued by Joo Chiat and Little India. About S$229.1 million worth of shophouse sales were registered in the first three months of the year, up from about S$167 million a year ago.