Industrial sector takes charge over real estate investment in Q3

Data centres and high-spec facilities are the new coveted assets.

Investors turned off by punishing measures in the residential property sector have instead channeled their money into the industrial and commercial segments in Q3, according to real estate consultant Colliers, with REITs and private funds leading the acquisition and divestments.

The trend, which has also been observed in neighboring Hong Kong, is expected to extend into Q4 as commercial and industrial segments pick up the reins from the residential segment after July’s cooling measures raised the acquisition cost of land and put a brake on heated sales activity. 

“Activity in the industrial investment market is likely to continue, as industrial REITs strengthen their market positions through selective acquisitions and divestments. We anticipate more activity, especially in niche sectors such as data centres, high-spec facilities and modern ramp-up logistics properties,” the report’s authors said.

Also read: Factories get a facelift amidst Singapore's industrial property sector transformation

The biggest deal so far was the $908m (US$658m) acquisition by OUE Commercial REIT of the office component of OUE Downtown from its sponsor. CapitaLand and CityDev also jointly nabbed a 3.7 hectare commercial and residential site at Sengkang Central for $777.78m in August which marks the first time in a decade that two developers teamed up for a project. The former also continued its capital recycling exercises after divesting its 70% interest in Westgate to CapitaLand Mall Trust for $789.6m.

The shift in deal activity away from the residential segment also reflects the more bullish sentiment in the commercial property sector with the office segment holding the distinction as the strongest performing real estate sector in Q3, according to the Real Estate Sentiment Index (RESI) Real Estate Developers' Association of Singapore (REDAS) and the National University of Singapore. The index noted that the hotel and serviced apartment sectors also displayed mild improvements in sentiment.

In stark contrast, the en bloc market has been disturbingly quiet with en bloc sales plummeting 90.71% QoQ to $353m in Q3, data from Cushman & Wakefield show. In fact, the record breaking $9.78b haul achieved in the collective sales market in the first half of the year is unlikely to be repeated in the latter half.

Also read: Were the government's cooling measures premature? 

“Whilst some smaller sites may still be sold, the total achieved for 2H/2018 may well be just a fraction of the 1H number, perhaps even below S$1 billion,” Savills said in an earlier report.  

Sentiment in the home segment as per the RESI has also taken a heavy beating with current and future sentiment souring from 63% and 58% in Q2 to 58% and 45% in Q3.