Singapore is the Asia's second most active real estate market

Singapore trails behind Hong Kong with 22% share in region’s total direct real estate investment, which rose 53% to US$18bln.

Activity in Asia’s real estate investment markets rose significantly in the third quarter of 2010 amid noticeable improvement in investor sentiment. In the quarter, most of the region’s major real estate markets regained momentum after the brief period of uncertainty following the onset of the eurozone sovereign debt crisis. Direct real estate investment in the region, excluding land transactions, grew by 53 per cent quarter- on- quarter to an estimated US$18 billion, according to CB Richard Ellis’ Asia Investment MarketView report for the third quarter of 2010.

Overall transaction volume in the first nine months of 2010 reached US$46 billion, a 102 per cent surge compared with the same period of 2009.

Investors gravitated to the most liquid locations. Hong Kong was the most active market in terms of investment volume, accounting for US$5.2 billion, or 29 per cent of the total regional volume. Singapore followed, accounting for 22 per cent and Japan for 20 per cent. China, South Korea and Singapore all posted strong quarter on- quarter increases in transaction volume, rising by 191 per cent, 165 per cent and 161 per cent respectively, as institutional investors continued to display a strong appetite for prime investment property in these markets. However, it should be noted that the significant quarterly increase in investment volume could be partly attributed to the strengthening of Asian currencies against the US dollar in the review period, which substantially inflated the overall volume in US dollar terms.

The office sector attracted US$7.4 billion in investment in the third quarter, representing 41 per cent of the total investment volume. The sector also accounted for six of the ten largest transactions recorded in the period. Deals involving office properties were most prevalent in Singapore, Hong Kong and South Korea, and these markets collectively accounted for US$5.3 billion in transactions. Singapore’s two major office deals include the sale of Chevron House to a fund managed by Deka Immobilien from Germany for S$547 million (US$425 million) and the sale of DBS Towers 1 and 2 to Overseas Union Enterprise for S$870.5 million (US$676.2 million). The largest office strata deal this year was the sale of the eighth to 11th floors at Samsung Hub, which were sold for S$111.42 million (US$87 million).

Jeremy Lake, Executive Director, Investment Properties, CBRE Singapore said “More office investment transactions took place with the office leasing market having turned a corner and rentals expected to strengthen in the near future”.

With the exception of Japan, office capital values continued to recover strongly in the third quarter, and the rate of increase was noticeably faster than that seen in the previous two quarters. The overall weighted average office yield fell for the fifth consecutive quarter by a marginal 5 basis points to 4.80 per cent.

Cross border real estate investment activity in Asia surged in the third quarter, accounting for US$3.1 billion. This signalled an 80 per cent quarter- on- quarter rise, although this figure was still relatively low compared to the 2007 peak of US$6.3 billion. Investment by non- Asian investors also picked up markedly to an estimated US$1.7 billion, while investment activity by institutional investors and REOCs (Real Estate Operating Companies) also took off, with total investment volume reaching US$7.8 billion, a surge of 66 per cent from a year ago.

Investment in retail assets also improved noticeably in the third quarter, underpinned by robust domestic demand and rise in the number of inbound tourists. Transactions of major retail properties accounted for US$4.3 billion or 24 per cent of total investment turnover. Japan recorded the largest proportion of retail investment in the region during the period, accounting for US$1.7 billion. The industrial sector also recovered steadily with transactions for industrial assets amounting to US$1.1 billion, similar to that in the first and second quarter of 2010, but jumping 65 per cent year- on- year from US$668 million recorded in the third quarter of 2009.

“We saw noticeable improvement in investor sentiment and transaction volume in the third quarter but weakening economic indicators could still have negative impact on growth. In particular, risks associated with volatile exchange rates and monetary policy settings by major Asian governments remain a cause for concern,” said Andrew Ness, Executive Director of CBRE Research Asia. “Nevertheless, we remain generally optimistic about the market outlook and continue to retain our earlier forecast that real estate investment in the region should reach a total of around US$60 billion for 2010”.