Non-residential deals will continue to drive investment activity in Singapore for the rest of this year, given faltering sales in the tepid private residential market, DTZ said in a report yesterday.
The report found that overall real estate investments fell around 11 per cent from the previous quarter to $4.4 billion in Q2.
And although non-residential investments (particularly offices) drove the volume, they too fell 6 per cent to $2.9 billion on muted transactions in the hospitality and mixed-use sectors.
At least six big-ticket non-residential property deals were concluded in Q2.
In the commercial sector, three office properties – Prudential Tower, Equity Plaza and Cecil House – all along Cecil Street in the central business district, were transacted. A consortium of Far East Organization, Far East Orchard and Sekisui House also beat seven others in a government land sales tender to clinch a 99-year-leasehold commercial site on Woodlands Avenue 5/Woodlands Square for $634 million.
In retail, Frasers Centrepoint Trust acquired Changi City Point at Changi Business Park for $305 million; in Industrial, Ascendas Reit bought Hyflux Innovation Centre at 80 Bendemeer Road for $191 million.
The transactions in Q2 brought the total investment volume in the first half of 2014 to $9.4 billion, 17 per cent lower than the same period last year. It also looks on track to achieve the earlier forecast of $20-25 billion for the full year.
Property companies and real estate investment trusts (Reits) were the main drivers of activity in Q2. Property companies were the largest buyers, accounting for $3.1 billion or 71 per cent of investment activity.
Reits were also very active, but their divestments of $512 million exceeded their acquisitions of $496 million, making them net sellers in Q2. This is expected to reverse in Q3, though. Acquisitions are likely to be boosted by the listing of Frasers Hospitality Trust.
The trust’s initial portfolio will comprise six hotels and six serviced residences, including two – InterContinental Singapore and Fraser Suites Singapore – located in Singapore. Both will be injected for a combined value of $824.1 million.
Swee Shou Fern, DTZ’s director of investment advisory services, expects Reit and developer acquisitions to continue supporting investment activity going forward.
“As global real estate markets start to improve, investors and funds are becoming more positive about the performance of the real estate . . . market. This could see them increasing their allocations to real estate and Singapore could benefit, being one of the most liquid markets in the region,” she said.
A Colliers report released last week turned up similar findings and projected similar trends.
It blamed the slump in residential investment sales on “the double whammy of frail investor interests in en bloc and strata-titled properties, as well as anaemic developers’ quest for land acquisition via collective sales”.
“In the next six months of the year, sales emanating from (government) land sales are forecast to stay subdued. On the private sector front, the collective sales market will likely remain depressed as the same factors that have kept it at a standstill will continue to play out in the months ahead,” it projects.
The consultancy expects interest in commercial properties to gather pace, backed by a steadily recovering office rental market.
“In addition, small and mid-sized family offices or single family offices are increasingly shifting their asset allocation towards property-oriented investments, particularly that of good quality office buildings that have potential upside in yield and capital appreciation. More of such deals can be expected to be sealed in the coming quarters,” it said.