Office deals surge to $1.7bln in third quarter

$879.5mln DBS Towers 1 & 2 purchase by Overseas Union Enterprises propels commercial property market upswing.

The property investment market gained further momentum, fed off by a rebounding office sector as transactions in office properties in Q3 2010 crossed the $1 billion mark – a level not breached since Q2 2008. This excludes deals for Chow House, Samsung Hub and Chevron House which are pending legal completion, according to a DTZ Research report.

Investments in office properties more than quadrupled quarter-on-quarter (QOQ) in Q3 2010 to hit $1.7bn, driven by the sale of DBS Towers 1 & 2. The $870.5m that Overseas Union Enterprises paid for the two buildings formed the bulk of investment spending in the sector, accounting for half of total office sales.

The transaction value for retail properties also jumped significantly from just $6.8m in Q2 2010 to $250.0m in Q3 2010, due to the sale of 287 strata-titled units in Chinatown Point to a consortium led by Perennial Real Estate Group.

“The upturn in the commercial property market is creating opportunities for both buyers and sellers”, said Shaun Poh, Senior Director (Investment Advisory Services and Auction). “More sales are envisaged in the next few months as a few deals are being finalised. The growing demand is however likely to be hampered by the lack of products available,” he added.

Total investment sales in Q3 2010 totalled $6.1bn, up 23.4 % from the $5.0bn clocked in Q2 2010. Investment figures compiled by DTZ Research comprise transactions that are more than $5m each and exclude $1.4bn of transactions in single residential units, lots that cannot be redeveloped/subdivided into more than one plot as well as deals that are deemed to be interested person/party transactions.

The industrial segment also gained ground in Q3 2010, notching up a 65.0% increase QOQ to reach $758.3m. A notable transaction was the $158.1m forked out for a 3.5 ha Government Land Sale industrial site in Ubi Road 1. At $169 per sq ft per plot ratio, it is one of the few occurrences where industrial land prices breached the $100 per sq ft threshold.

The last time was in August last year, which saw a site at Kaki Bukit Road 2 receive a top bid of $105 per sq ft per plot ratio.

Investments in residential properties, which hit $1.9bn, remained a prominent driver of investment deals, accounting for 30.4% of overall investment purchases. However, unlike in Q2 2010 where investments were mainly geared towards government land sales of residential sites, the private sector had a larger hand in sewing up the majority of residential deals with 59.2% share of all residential transactions.

More than half of the private residential investment amount came from the collective sales market while bulk purchases of luxury condominium units by institutions and funds accounted for the rest. The collective sales market saw $634.8m worth of deals in the Q3 2010, up from the $329.9m in the second quarter. The deal for Meng Gardens, which sold for $137.0m, was the first collective sale of the year to breach the $100 million mark.
Government land sale of residential sites were clearly less buoyant in Q3 2010. In the wake of 15 sites already sold in H1 2010 and with a large supply of land parcels yet to be released, government sale of residential sites fell 58.9% QOQ to $760.9m in Q3 2010. Developers have become more selective, as evidenced by an executive condominium site at Jurong West which received no bids.

The hunt for bigger ticket items is also gaining pace. 18 deals over $100m each, totalling $4.9bn, accounted for 80.3% of total investment value in Q3 2010. This is higher than the 70.7% that 15 transactions of over $100m each contributed to total investment in Q2 2010.

“With sentiments improving, particularly in the office sector which has pulled out of a trough, investors are beating a path back into the market and leading to deals with a bigger quantum sealed,” observed Miss Chua Chor Hoon, Head of DTZ South East Asia Research.