Long-term potential of Commercial property in Singapore

Commercial properties in Singapore still hold a special place in the hearts of investors, if the activity in the market last year was anything to go by.

straitstradingbuildingThere were some massive bulk purchases of prime sites from foreign entities in 2016 and developers were actively buying up land sites. Investors are obviously seeing huge potentials of the commercial property market here. The 43-storey Asia Square Tower 1 for example was sold at $3.38 billion to Qatar Investment Authority’s sovereign fund in June 2016. This record sale by investment firm BlackRock was the largest single-asset and office transaction in the Asia-Pacific region. On a smaller but not any less worthy scale, is the sale of the Straits Trading Building to Indonesia’s Mayapada Group for $560 million. At $3,250 psf, it set a record for psf prices in the district.

Investors from all over the world are spotting the potential for long-term positive growth in this region and in extending their reach in Singapore. Large assets here are of particular interest and 2017 may see more such transactions taking place.

sbf-centerNot only are they investing in completed commercial properties, but also in land with developmental potential, such as a white site in Central Boulevard which was purchased by Malaysian plantation and real estate tycoon, Lee Shin Cheng. This Marina Bay mixed-use site was released under the Government Land Sales (GLS) programme. Though the office rental market has not been in its best form last year, there is hope that it will bounce back up by 2021.

 

Will current property bright spots continue to shine in 2017?

Private home prices have continued to fall in 2016, and while that may have coloured the market atmosphere somewhat grey, bright spots are beginning to shine through the gloom, with 3 sectors performing particularly well this year.

Miro condo on Lincoln Road, just off Novena at the City Fringe districts.

Miro condo on Lincoln Road, just off Novena in the city fringe.

The luxury residential property, commercial office and collective sales segments have all shone this year. And industry players are no doubt hoping that the positive streak will continue in 2017. In this year alone, 3 en bloc sales were closed. Only 1 such transaction was recorded for 2015 and none in 2014. Even for the private home market, sales volume has risen 9.8 per cent this year despite 10.8 and 10.7 per cent fall respectively in sale prices and rents in 12 consecutive quarters.

Some property analysts however consider the fall in property prices a good thing, as this has enticed more buyers back into the market. Buyers who may have previously stayed away from the market due to the increased stamp duties and fees implemented by the authorities in the past few years to attempt to cool the market, have now returned and are now swiftly closing transactions.

2 RVG condo apartment in River Valley

2 RVG condo apartment in River Valley

In the prime districts of 9, 10 and 11, private home transactions were already 42.6 per cent higher than the total in 2015. 2,601 deals were sealed in the Orchard, River Valley, Bukit Timah and Novena areas as of mid-December. With more land allocated under the Government Land Sales (GLS) scheme and developers on the lookout for smaller prime location sites, the market may see a lot more activity quite soon.

Economic slowdown affects industrial property market

2016 has seen quite a few political shakeups and the economy has been suffering the aftershocks. The  gas and oil market have been slightly flailing, with some companies stripping down to the minimum or moving out entirely hence the pickup for new industrial units or renewal of older leases have been lesser than optimal.

az-paya-lebar-industrial-propertyIn Singapore, industrial property prices and rental demand have declined in the third quarter, in particular sites or units with 30- and 60-year leases. Following the recent Trump win in the US elections, global uncertainty continues as countries question what future moves the newly elected US president in terms of trade agreements. With one of the most fast-moving industries of late begin e-commerce, which may not require as much space as manufacturing, storage and smaller boutique spaces could be the next wave.

Economic analysts say that global trade needs some rejuvenating or the industrial and warehousing sectors may continue to decline. Freehold industrial developments saw the smallest fall in prices of 1.4 per cent while 60-year leases fell 4.7 per cent and 30-year leases, 2.1 per cent. Rental demand is lower than supply and it continues to be a tenants’ market.

jtcinternationalbusinessparkThe only plus is the increase in interest in business park units, with rents expected to increase by 3 to 5 per cent next year. The International Business Park in Jurong East has seen a rise in average monthly rent of $0.10 psf with 25 leases signed in Q3 alone.

In the industrial sales market however, fewer industrial properties exchanged hands as most companies are holding back their expansion plans in lieu of the economic slowdown. Property analysts are expecting a further 5 per cent dip in industrial rents come end of 2016.

Indian cities top in list of Asia’s property investment hotspots

India may not have previously come up as a potential goldmine for property investors, but real estate in some Indian cities have been creeping up the popularity charts and can now be viewed as some of Asia’s most prime investment real estate.

mumbaipropertyJust like in China, a huge country like India will no doubt have some cities which shine over the others. Mumbai and Bangalore have come up tops in a comparative table of 22 Asian markets. With many multi-national companies setting up regional headquarters or back offices in India, it comes as no surprise that commercial properties are key when it comes to real estate investment in India. The migration of locals from smaller cities and townships into these main cities and business hubs also mean a demand for rental properties are on the rise.

Singapore has fallen from its 11th place to 21st as residential property prices declined for 12 consecutive quarters. Even Tokyo, which topped the list at first place this year, have fallen to 12th place for next year as low interest rates see sellers holding on to their properties despite low vacancy rates. Japan’s declining economy also has a part to play in the market sentiments there.

newyorkapartmentThe mainland Chinese investors are some of the largest players in real estate markets across the globe, but they have begun to turn their attention away from Asia to markets further north such as London and New York. Property prices in China are soaring, and their yearning for foreign footholds and connections have brought them into both established markets in the West and emerging ones in the region.

Commercial property sector facing price and rent squeeze

As the supply of commercial spaces increase, demand has not unfortunately shown a proportionate growth, resulting in a squeeze on prices and rents. Across the board in the third quarter, prices and rental rates have fallen while vacancy rates are on the rise.

tuaswarehouseWhile things in the manufacturing sector has picked up, a bigger turnaround needs to happen before a corresponding uptake in the commercial property industry. The warehouse sector has taken the hardest hit apparently, with a 4.4 per cent fall in rent from Q2. Industrial property prices fell 1.7 per cent, a 7.8 per cent fall in a year-on-year comparison with Q3 of 2015. Rents in the same segment fell 2 per cent in the third quarter. Property experts are expecting similar market reactions for the next few quarters ahead.

kampunbahrushophouseMore rare commercial spaces such as shophouses are however entering the market at more reasonable prices than before. And with selling prices low, investors who might be looking at very long-term prospects of the commercial property market here might be picking off deals. The increase in industrial space – almost 3 million square metres – by end of 2017 will also put further pressure on prices, which could mean a market shift towards the tenants and investors while landlord struggle against the competitive grain.

Buyers on the lookout for Shophouses in Central districts

Property investors, local and foreign, are once again looking at shophouses with renewed interest, in particular freehold conservation shophouses.

kretaayershophouseInvestors’ preferred units are either freehold or 999-years leasehold, and can be fully leased. Some of the more popular units are in the Kreta Ayer Conservation Area of the Chinatown Historic District. Two 3-storey freehold conservation shophouses on 22 and 23 Mosque Street are looking for interested buyers and JLL reports the single land lot to have a gross floor area of around 7,800 sq ft with an indicative price of $23 million.

Centrally located, with the Chinatown and Telok Ayer MRT stations nearby, and a variety of boutique hotels and modern upscale eateries in the vicinity, these shophouses are primed for development and rental. Investors who buy into the shophouses here can no doubt enjoy reaping the fruits of their investments quickly.

mosquestreetshophouseJust a short walk away, CBRE is launching 3 adjoining shophouses at 77 to 80 Amoy Street for tender with an estimated pricing of $64.3 million which comes up to approximately $2,700 psf for the 3-storey units with attics. Up to row at 44, 45, 46 and 49 Amoy Street, OCBC has also put up four 999-year leasehold, 2-storey shophouses with attics for tender, marketed by Cushman and Wakefield. With this flurry or activity in the shophouse front, owners will do well to consider cashing out while the interests are high.

Has Brexit really affected UK property prices?

northcentrallondonNot yet, it seems. Though the recent Brexit event has had investors in a bit of fluster, with the lack of clarity of the horizon ahead for both the UK and other European nations, with many expecting some sort of a price drop in properties in the United Kingdom, the real punch of Brexit has yet to take effect – for the real estate sector at least.

Unlike the 2008 financial crisis, property owners are yet pushed to the point to having to dump their assets haphazardly. The risks for property owners and sellers are not extreme yet, thus most of the re-pricing of properties are in secondary assets, according to property analysts familiar with the UK property market. Britain’s real estate sector has remained strong thus far, with continued interest from Asian investors and buyers. Some of the most recent property investments include a£700 (S$1.2 billion) deal from Singapore’s GIC fund who has joined forces with student housing provider GSA in a student-acommodation property.

grovelaneukSome British funds who may be dealing with investors pull-out due to Brexit may however be looking to sell their property assets and buyers could look towards these properties for possible bargains. Most would however be commercial properties. Residential property hunters may also still be enticed by the weaker sterling and slight discounts.

Prime time for Shophouse Shopping

In the commercial property sector, shophouses have always been a rare commodity, and recently 3 adjoining units from 77 to 80 Amoy Street, have been put up for sale by York Management. Prices stand at around a total of $64.3 million or approximately $2,700 psf.

kretaayershophouseSome of the more popular and highly-priced shophouse units are in Chinatown and the surrounding streets up to Tanjong Pagar such as Ann Siang Hill, Pagoda Street, Neil road, Erskine Road and Boat Quay; as well as the Bugis and Beach road areas. Many of these are in the URA Masterplan‘s conservation areas and thus understandably scarce and priced as such. Joo Chiat, Tiong Bahru and Katong shophouses area also rare and in demand while more available and accessible are units in the Little India, Geylang, Bukit Merah and Jalan Besar. There are also more affordable shophouses in other districts which are not in conservation areas such as in Bedok or Upper Paya Lebar, suitable for office and business use.

jalanbesarshophouseConsidering that recent transactions in the shophouse market hovered around $3,000 to $3,350 psf, these three 3-storey adjoining units coming at $2,700 psf are highly attractive, though if the requirements are for a en-block purchase, the investor will have to think about the overall cost. However, the latter at $64.3 million is still lower than the $66.8 million which the sellers were asking for about a year and a half back.