Asia Square Tower 1 sale will spur more big-ticket office deals: analysts

But prime rents will continue to slide.

The $3.4 billion sale of Asia Square Tower 1 will rekindle investors’ interest in Singapore’s prime office market, according to analysts.

“While office investment volume had come down significantly in the past year, the recent big-ticket transactions of Straits Trading Building and now Asia Square Tower 1 may give the market a shot in the arm and give other long-term investors confidence to venture forth and place bids for their desired properties,” said Christine Li, director of research at Cushman & Wakefield.

Li noted that despite declining rents, office capital values have remained resilient, supported by institutional and individual investors with a long-term horizon.

“We believe that the Asia Square transaction could spur investors' interest, particularly those from sovereign wealth funds and insurance companies in the city-state, as Singapore is known for its ability to attract long-term investors looking for wealth preservation given the stable political landscape and strength of the Singapore currency,” she said.

Greg Hyland, head of capital markets at JLL, noted that there is growing demand from global investors looking for looking for major single asset opportunities in the region such as Asia Square. JLL brokered the sale of Asia Square Tower 1.

“Following this flagship transaction, we expect there will be increasing investor interest in Singapore prime office stock in the coming months,” Hyland noted.

However, Li cautioned that despite increased investor interest, Grade A rents will remain depressed on back of excessive supply and weak tenant demand.

“The supply overhang of 3.55 million sf scheduled for completion in 2016 will likely lead to the Grade A CBD vacancy rate exceeding double digits by the end of the year,” she warned.

Asia Square Tower 1’s price tag translates to approximately $2,650 psf. Li noted that the price is comparable to the transaction of Marina Bay Financial Centre (MBFC) Tower 3 in 2014, where Keppel Land sold 1/3 stake to K-Reit at $2,680psf. However, the price pales in comparison to the recent transaction by Straits Trading building, which was sold to MYP controlled by Indonesian Tycoon Dr Tahir, at $3,520psf, particularly given that Straits Trading building is 100% occupied compared to just 91% for Asia Square Tower 1.