Investment sales of property – big-ticket transactions of at least S$10 million – have risen 56.7 per cent to nearly S$5.7 billion in the second quarter from S$3.63 billion in the first quarter of this year.
The quarter-on-quarter surge was on the back of a couple of large transactions in the commercial property segment – the S$1.67 billion winning bid for the plum Paya Lebar Central site by the partnership between Lend Lease and Abu Dhabi Investment Authority at a state tender; and the proposed acquisition of an effective stake of at least 61.16 per cent in One Raffles Place by OUE Commercial Reit for S$1.29 billion. The latter involves a related party transaction.
According to figures from Savills Singapore, investment sales in the first half have reached S$9.3 billion; for the whole of last year, the number was S$17.84 billion. The property consulting group had earlier forecast that the full-year 2015 figure would come in at S$17-20 billion. Steven Ming, MD and head of investments and residential services at Savills Singapore, now thinks the number may be closer to, or even slightly surpass the top end of this range if a string of large office transactions take place by year-end.
These include the sale of Asia Square Tower 1 by a Blackrock-managed fund which has a price tag of about S$4 billion or S$3,200 psf on net lettable area. Also on the market is Alpha Investment Partners’ half-stake in Capital Square, with a reported expected pricing of S$543.5 million or S$2,800 psf.
A sale of the ageing CPF Building along Robinson Road is also on the cards. By some accounts, the property, which has significant redevelopment potential, could be worth more than S$450 million.
Moreover, noted market watchers, Blackrock is open to divesting the rest of the space that it owns in Asia Square which could be worth about S$2.5 billion, assuming the same S$3,200 psf pricing as for Tower 1.
Talk in the market, however, is that a few buyers who could potentially stomach a big-scale purchase like Asia Square without having to raise fresh equity, may have found Blackrock’s guide price too steep.
The latest Q2 investment sales tally is 20 per cent higher than the S$4.75 billion in the same period last year. The commercial segment accounted for the lion’s share or almost 65 per cent of real estate investment sales in Q2 this year.
Besides One Raffles Place and the Paya Lebar site, other sizeable transactions included Suntec Reit’s divestment of Park Mall along Penang Road and CapitaLand offloading its 30 per cent interest in PWC Building in Cross Street to DBS Group.
On a less buoyant note, Savills pointed out that investment sales in shophouses nearly halved to S$53 million in Q2 from S$105 million in Q1.
In the residential segment, some S$1.56 billion of investment sales were posted in Q2, up from S$1.1 billion in the previous quarter but lower than the S$1.7 billion in Q2 last year.
CBRE director, investment properties, Galven Tan, noted that across various sectors, a major challenge in sealing transactions is a widening price gap between buyers’ and sellers’ expectations.
“For offices in particular, where investors typically look at net yields of about 3.5 to 4 per cent, buyers will expect higher returns to compensate them for the increase in borrowing costs.” Another investment sales specialist told BT that the outlook for the Singapore office sector is not as bright as it was six months ago.
“The rental market is not so buoyant; a few major tenants are moving out of the CBD. Banks are right-sizing. There are concerns about office leasing fundamentals in the near to mid-term. Strata office sales have also cooled.”
On a more positive note, though, Mr Tan of CBRE said that core funds, which tend to take a long-term view with more stable returns, may be poised to return to the Singapore office market. “We are in touch with these funds and they are looking for quality assets in Singapore.
“They realise that in markets such as London, competition among buyers has increased, resulting in a lower success rate in terms of clinching properties in general, including offices. These funds like the stability story that Singapore offers,” he added.
Agreeing, Cushman & Wakefield Asia Pacific’s regional executive director, capital markets, Priyaranjan Kumar, said: “Prime commercial property in the Singapore market compares favourably in terms of income profile with similar prime space around major target markets such as New York, Tokyo, Sydney and West End London.
“The challenge lies with the weak signals from the holy trinity that drives increased investment volumes – rental increase, employment growth and tangible occupier strength.”
Over the next couple of years, potential buyers of big-ticket office properties – barring sovereign wealth funds, pension funds and insurance-type investors – are likely to stay cautiously optimistic, but may stay on the sidelines. “When office prices come off, listed buyers, specifically Reits, will dive into the market as acquisitions become yield-accretive again,” said Mr Priyaranjan.
Analysts note that Singapore Reits have slowed down on office acquisitions here, except for related-party deals.
Observers expect the total debt servicing ratio framework to remain a drag on sales of strata commercial and industrial units, to individual investors.
In the residential segment, Savills Singapore research head Alan Cheong highlighted that the reduced supply of land for housing development will result in subdued investment sales. “On one hand, the impending completions of residential projects coming in the light of falling rents are making developers weary of bidding for private land or triggering reserve-list sites on the GLS (Government Land Sales) Programme. On the other, the authorities, on realising the increased supply of completed homes, have been reducing supply of sites on the confirmed list of the GLS Programme for pure private residential development.”