Property investors upbeat in non-residential sectors

Singapore's rising image as safe, liveable and vibrant city state seen to aid in investment activities.

Riding on the back of a strong economic rebound, investment sales for the third quarter continued on a healthy note. Preliminary data from July to September showed investment sales totalling circa $5.909 billion, a decline of 8% q-o-q but a significant improvement of 86% compared to the same period last year. There is currently over $590 million worth of deals that are under conditional contract, suggesting that this quarter could even close higher than last, according to a Jones Lang LaSalle report.

“The strong economic recovery we have seen so far has enabled the property investment market in Singapore to produce sterling results this year. A significant improvement when compared to the lack lustre yesteryear. The return of institutional funds alongside the rising image of Singapore as a safe, liveable and vibrant city state will definitely aid in ramping up investment activities in the months ahead” says Ms Quek Soh Hoon, Head of Commercial Investments at Jones Lang LaSalle.

Compared to the previous quarter, there has been a significant flow of funds into the non-residential sectors, particularly the office sector which despite only seven transactions recorded thus far, investment sales in dollar terms increased by almost five times to $1.906 billion. This exceptional performance is in part driven by the fact that some real estate indicators are suggesting that the office market is bottoming out. Rental growth has been observed in certain corners of the market and this has given investors the confidence boost to pick up key office projects with significant upside income potential.

The largest transaction came from the transaction of DBS Towers, which was purchased by Overseas Union Enterprise at $870.5 million. Other deals include the sale of Chow House at $101.0 million, purchase of Starhub Centre by Frasers Centrepoint at $380 million and a partial divestment of Ho Bee’s commercial portfolio at Samsung Hub at $111.42 million.

For Government land sales, a commercial site at North Buona Vista Drive which contributed $410.99 million was again awarded to Singapore listed developer, Ho Bee Developments Pte Ltd. Within the same month, another tender for a commercial site at Stamford Road/North Bridge Road received a total of 14 bids although only ten bidders participated in the tender. Keen interest for the site has led to bidders putting in multiple bids to increase their chances of winning the tender. The bids are currently being reviewed by the Urban Redevelopment Authority as it is under the Concept and Price Revenue Tender, wherein the award will be given to the highest bidder with an acceptable concept proposal.

Similarly, the hotel sector also seemed set to pick up this quarter with a 23.3% increase in investment sales to $519.11 million compared to last quarter. Two hotels, namely IBIS Singapore and Park Regis Hotel, were transacted at about $200 million and $218 million, respectively. Riding on the growth in the tourism sector and healthy hotel occupancy, the same month saw a hotel site at Clemenceau Avenue/Havelock Road being awarded to RB Capital Hotels Pte Ltd at a price of $101.11 million.

In a nutshell, this quarter saw a shift in investors' profile with significant contribution from bigger players in the investment market and also a ramp up of activity within the commercial sector.

Dr Chua Yang Liang, Head of Research South East Asia reckons “With improving market sentiments and office rental growth gaining strength, investment sales in this sector is likely remain positive and face upside. Already brewing in the pot are potential deals by Goldman Sachs Funds for Hitachi Tower and Chevron House.”

And he thinks that with the recent upward adjustments to Development Charge (DC) rates coupled with government measures, largely targeted at cooling the residential property market, this should bode well for other property sectors as investor interests focus on these non-residential sectors.