Commercial property sector sees 229.6% Q1/2023 investment sales increase, fueled by retail transactions and strong demand for strata office space
Savills Research has reported a significant bounce back in the real estate investment sales value for Q1 2023, recording an increase of 100.4% quarter-on-quarter (QoQ) to S$5.63 billion, up from S$2.81 billion in Q4/2022. The growth was boosted by the closure of some big-ticket transactions, including Link REIT’s S$2.16 billion acquisition of Jurong Point and Swing By @ Thomson Plaza.
The commercial property sector saw a 229.6% QoQ increase in investment sales in Q1/2023, reaching S$3.38 billion, with the conclusion of the sales of Jurong Point, Swing By @ Thomson Plaza and a 50% stake in NEX accounting for 83.3% of the total transaction value in Q1 for the commercial sector.
While the transaction value for strata-titled office units dropped by 5.4% from Q4/2022 to S$290.0 million in Q1/2023, the buying momentum for strata office space continued into 2023. The Solitaire on Cecil, a 20-storey freehold office project, received strong buying interest and had the 17th, 18th and 20th floor sold for a total of S$162.8 million, or S$4,300 per square foot on a blended basis across the total strata area of 37,857 square foot by Mr. Galven Tan, Deputy Managing Director and Ms. Yap Hui Yee, Executive Director of Investment Sales and Capital Markets. The sale of these three office floors marks one of the largest strata office transaction by quantum since January 2022.
The shophouse front also saw an increase in investment sales of 11.2%, from the S$173.7 million in Q4/2022 to S$193.2 million in Q1/2023, with the largest deal (in terms of quantum price) being the purchase of a block of six freehold shophouses along Serangoon Road for S$62.5 million by a union affiliated with Singapore’s National Trades Union Congress (NTUC). Another significant transaction is the sale of a six-storey shophouse at 52 Boat Quay, brokered by Ms. Yap Hui Yee, Executive Director of Investment Sales and Capital Markets for $37.0 million.
The retail sector had three block transactions, including the acquisition of a 50% stake in NEX by Frasers Property and Frasers Centrepoint Trust for S$652.5m and the purchase of Jurong Point and Swing By @ Thomson Plaza by Hong Kong’s Link REIT for S$2.16 billion. Despite high interest rates, prime assets such as suburban malls with close proximity to residential areas and transportation hubs continue to attract investors due to steady footfall and demand for essential retail goods and services.
Investment value for residential sites and properties amounted to S$1.58 billion in Q1/2023. Despite there being no GLS sites awarded in the quarter, the residential sector recorded a quarterly growth of 12.5% from S$1.40 billion in Q4/2022 to $1.58 billion in Q1/2023.
Similarly, the collective sales market gained momentum in Q1/2023, following a relatively quiet Q4/2022, with three private residential sites being transacted for a total of about S$583.8 million in Q1/2023. The biggest transaction was for Meyer Park in District 15. This collective sales development was acquired by a joint venture between UOL Group and Singapore Land Group for S$392.2 million.
Developers continued to adopt a cautious stance and focus on small to medium-sized sites in prime locations. From the sales of Meyer Park and Bagnall Court - realistic pricing is key to a successful collective sale. Developers are now more price sensitive in view of economic challenges and potential cooling measures. Moving forward, the price gap between owners and developers will determine the direction of the collective sales market.
Overall, these encouraging figures recorded in Q1/2023 may indicate that despite global economic challenges, the real estate investment market in Singapore remains stable. While most institutional investors and corporate buyers stayed on the side-lines, Ultra-High Net Worth individuals (UHNWIs) filled the gap, with prices within their hefty budgets. Additionally, the bank fallout in the United States and Switzerland could also have encouraged UHNWIs to buy real estate in safe havens, such as luxury apartments, strata offices and shophouses.
However, this group of buyers has a lower propensity to lodge caveats. Therefore, while publicly available data may show investment sales in line with 2022's S$24.7 billion, the possibility of it being larger is an increasing tail risk.
“Investment market activity is being hampered by a price gap. Sellers are looking in the rear-view mirror when the environment was more favorable, while most buyers are looking down the road ahead and pricing in the uncertainty. This is especially true for institutional buyers who are highly interest rate sensitive. Fortunately, UHNW private buyers are more resilient and active due to Singapore’s safe haven status and its recognition as the Switzerland of Asia.” says Jeremy Lake, Managing Director of Investment Sales and Capital Markets.
“Ultra-High Net Worth Individuals may be the dominant driving force in investment sales as the turmoil in the global banking industry may induce them to turn towards real estate,” adds Alan Cheong, Executive Director of Research & Consultancy.
“Strengthening headwinds generated in the global economic scene are unlikely to deter Ultra-High Net Worth individuals from investing in Singapore real estate as they have different investment aspirations to those of institutional clients that are currently impacted by the financial markets.” says Marcus Loo, Chief Executive Officer of Savills Singapore.
Savills Research provides in-depth analysis of property market trends, forecasts from our professional research team and market commentary to help you make the right property decisions.
Download the Sales and Investment Briefing for Q1 2023 here.