Singapore’s real estate transaction volumes plunge 44.4% to US$ 2.2b in 2Q11

Although direct real estate transaction volumes are down 44.4% q‑o‑q in 2Q11 due to seasonal reasons, it is nearly 225% up on a y‑o‑y basis. Strong double‑digit growth in the financial services sector continued to drive gross prime Raffles office rents up 1.5%, even with significant supply coming on‑stream. Likewise, strong tourist arrival growth is proving to be the main driver in the prime Orchard retail markets with gross retail rents up 0.8%. Capital values in both markets are growing faster than rents, leading to yield compression in both markets.

Our direct real estate transaction volumes charts are also skewed down by the absence of significant equity deals. For example, national insurance company NTUC Income purchased prime office asset Capital Square in an SGD 833 million or USD 684 million deal from Ergo Insurance Group.

In terms of direct real estate transactions, the trophy Raffles Hotel and its accompanying shopping arcade was sold by Fairmont Hotels to Qatari Inc. for SGD 341 million or USD 275 million at an estimated yield of 5.2%. This deal was started in 2010 but has recently been completed this year in June. Hotel deals played a big role last quarter with the Crowne Plaza Hotel near Changi Airport sold to unlisted developers OUE by LaSalle Asia Opportunity II fund
and LC Development. This Jones Lang LaSalle‑brokered deal was worth SGD 225 million or USD 181 million.

After a heady first quarter, the biggest non‑hotel direct buyers are domestic unlisted developers and listed REITs, with a particular focus on industrial assets and secondary transactions as prime office and retail stock continues to remain scarce. We expect capital values for prime plays to continue to grow as strong investor demand chases limited investable stock.