As Singapore’s commercial property market slows down, industry leaders from major fund managers Ivanhoe Cambridge, Oxford Properties and Allianz Real Estate continue to see US and Chinese tech firms driving demand for suburban offices in the city-state.
Oxford Properties Asia Pacific head of investments, Alessandro Fiascaris, said that the Toronto-based investment firm remains positive on the Lion City’s property market despite rising inflation and interest rates.
Fiascaris was speaking on a panel at the Mingtiandi Singapore Forum on Tuesday, where he said that tech firms’ interest in Singapore means suburban office assets are growing in appeal compared to prime office assets where cap rates hover around three percent.
“Southeast Asia is a big target for American and Chinese tech companies to expand so a lot of capital and resources are being deployed in the sector,” he said, referring to the main drivers of suburban office demand. “We have been a believer of life science globally and we’ve seen a significant trend in Singapore.”
Offices Tightly Held
Speaking at the same forum, which was sponsored by Yardi, JLL chief executive for Southeast Asia Chris Fossick said the volume of office space outside the central business district will continue to grow as more regional centers like Jurong Lake District and Paya Lebar are developed.
Danny Phuan of Allianz Real Estate
“Is the market going to be oversupplied? The general consensus is it’s not,” he said. “We don’t think there will be any let up in demand other than what is relative to just economic variations.”
Prospects for the suburban office sector may be bright but Allianz Real Estate’s APAC head of acquisitions, Danny Phuan, said few commercial assets deals are currently happening in Singapore.
According to Phuan, owners are holding on to their prime office buildings as they wait for market conditions to improve, making it difficult for core investors to close quality acquisitions.
“Most of the prime offices are all held by well capitalized asset owners and there’s no need for them to sell if the price is just not what they expected,” he said. “For us, we are still on the lookout to do good deals in Singapore.”
Despite the slowdown, Phuan continues to be optimistic on the office market given Singapore’s reputation as a financial hub and as a launch pad for companies going global.
Opportunities in Singapore
George Agethen, APAC co-head at Ivanhoé Cambridge, shared the same view, saying during the panel, which opened the 200-person event, that his team continues to look for investment opportunities in the city.
Agethen said that Singapore’s alignment with a growing global focus on sustainable real estate is creating opportunities for value-add strategies.
“We certainly do see an opportunity still in Singapore as well as the other major cities here in Asia, in improving assets to a top level grade A asset that we will hold on to,” he said.
JLL’s Fossick expects Singapore’s overall office market to remain as an attractive investment destination due to its rental growth potential — which he expects to hit 10 percent this year. He also noted that declining yields may have bottomed out already.
Singapore saw commercial deals drop 95 percent to S$498 million in the third quarter from the preceding three months, according to a report by Cushman & Wakefield.
Shed Shortage
Aside from the office sector, another attractive asset class for Ivanhoé Cambridge’s Agethen is the city’s logistics segment where rents are climbing due to tight supply and occupancy rates.
Ivanhoé Cambridge maintains interest in the sector via its investment in Logos, which was absorbed by Hong Kong logistics giant ESR earlier this year.
Oxford Properties, which is among the largest shareholders in ESR, takes a similar point of view. Fiascaris also said the Canadian pension fund manager is seeing a rise in demand for investment grade warehouse space in the city, at the same time that delivery of new stock fails to keep pace with demand.
