Singapore commercial property investment volume dives 78% in Q1
Fri, May 15, 2020
Rachel Mui
SINGAPORE dropped out of the top 10 cities in commercial property investment volumes in the first quarter, with transactions plunging 78 per cent year on year to US$432 million, according to Real Capital Analytics' (RCA) Asia-Pacific (Apac) Capital Trends report.
The steep drop was partly due to a high base as 2019 was a record year. The number of deals also fell significantly to just 13 deals for the quarter, representing a 32 per cent decline from the previous year. Like the rest of the region, the volume of deals above US$250 million fell the sharpest, with only Hong Kong faring worse than Singapore, RCA noted in a press statement on Thursday.
David Green-Morgan, RCA's managing director of analytics for Apac, said: "Singapore saw high investment volumes in 2019 and despite the slowdown this quarter, it remains a global destination. It will see a further dip, but once yields cross a certain threshold, deal volumes should come back."
Nonetheless, market observers seem to have mixed views on the outlook for investment sales in the upcoming quarter.
Mr Green-Morgan told BT on Thursday: "It looks as though Q2 transactional activity for Singapore will be higher than Q1, but almost certainly down on a year ago. As the 'circuit breaker' restrictions start to ease in June, we may see investors be more willing to make decisions."
Christine Li, Cushman & Wakefield's head of research for Singapore and South-east Asia, told BT that commercial investment volume is expected to surge in the second quarter due to the return of big-ticket transactions.
Added Ms Li: "A major deal is the Perennial-led consortium's sale of a half-stake in AXA Tower to Alibaba at an agreed property value of S$1.68 billion. In addition, Perennial is also divesting its 30 per cent stake in TripleOne Somerset to Shun Tak Holdings for S$155.1 million.
"Reit mergers will also contribute a sizeable quantum. Frasers Logistics Trust's acquisition of Frasers Commercial Trust has resulted in S$648 million of volume from China Square Central, while CapitaLand Mall Trust's acquisition of CapitaLand Commercial Trust (subject to approval by unitholders) will lead to another S$10.2 billion of volume from eight properties."
Likewise, Tricia Song, head of research for Singapore at Colliers International, expects Q2 to fare better than Q1 in terms of real estate investment sales. "We expect industrial assets in particular logistics assets to see more investor interest as they ride on the growth of e-commerce," noted Ms Song.
DBS analyst Derek Tan told BT that commercial investment volume is likely to be lower than Q1 due to a "buyer-seller stalemate" amid the Covid-19 disruption.
"Volume will be quite low, but the impact on pricing will be interesting to watch," said Mr Tan. He noted that at this point, investors are trying to get a sense of whether there is a "structural change to asset values" in light of the pandemic. Mr Tan expects valuations for commercial properties to weaken by about 5 to 10 per cent by the year-end.
Nicholas Mak, head of research and consultancy at ERA Realty, also noted that transaction volumes are expected to be much thinner in Q2 than Q1 based on the expectation that the economy will be more uncertain this year due to the outbreak.
Across the Asia-Pacific, real estate investment volumes nosedived by 50 per cent y-o-y to US$21.3 billion in Q1, as the Covid-19 outbreak spread from China to other key markets in the region, the RCA report stated.
Amid the slump in transaction activity, South Korea has been Asia-Pacific's standout market so far this year, bucking the trend with a 12 per cent growth in investment volumes to US$4.53 billion for the quarter.
"On the whole, activity in 2020 looks on track to be significantly below last year's near record of US$170.3 billion, but the headline figures may overstate the extent of the investment weakness," RCA said.
It added that many transactions under contract that were expected to be completed in Q1 have been delayed, leading to a "bulging pipeline" of pending deals.
Mr Green-Morgan noted that there have been few indications of deals being terminated so far, suggesting that investors are "adopting a wait-and-see approach rather than entering panic mode".
He added that the wave of the pandemic is further along in Asia-Pacific than other regions and most signs suggest that Asia-Pacific may already be at, or near, the bottom of the investment slump.
Going by sectors, the weakness in investment sentiment for Q1 affected all property sectors, though industrial properties held up the best, RCA said.
Investment volumes for the industrial sector fell by 10 per cent, in contrast to declines of more than a third for the other property sectors.
"Investors have already been retreating from office and retail properties over the past 12 months, and the Covid-19 pandemic exacerbated this slide," RCA noted.
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