Confidence has returned; investment appetite remains healthy - real estate opportunities in Singapore will likely be front-and-centre of investment strategies in the coming year.
Global investors have put money to work in Asian real estate in recent years, and transactions hit a 10-year high in 2018 – reflecting renewed confidence in prospects for the region. According to a study on capital flows by Colliers Research, total investment in the Asian real estate sector from outside Asia grew 38% in 2018 to US$24 billion.
Intra-Asian investment in real estate was also very positive, growing 10% in 2018, to a record US$98.2 billion, with capital from Hong Kong, Singapore and South Korea very lively, the Colliers report noted. Despite the global trade and geopolitical headwinds, Colliers believes real estate transactions could still grow further this year, as the search for core assets and yields continues.
“We have seen rising global allocations to Asia in the last few years and this has been driven largely by the region’s promising growth potential on the back of mega trends such as increased affluence, rapid urbanisation, and infrastructural development," says Tang Wei Leng, Managing Director of Colliers International in Singapore.
Uniquely Singapore
Within the region, Singapore has emerged as a real estate investment bright spot. A recent report by PWC and the Urban Land Institute noted that Singapore now offers the best real estate investment prospects in the Asia Pacific region. The Emerging Trends in Real Estate Asia Pacific 2020 report highlighted that sentiment for Singaporean assets has rebounded. It added that the office sector has largely absorbed the oversupply, and with vacancies at an all-time low and limited supply in the pipeline, confidence in medium-term prospects has returned.
"We have seen rising global allocations to Asia in the last few years and this has been driven largely by the region’s promising growth potential on the back of mega trends such as increased affluence, rapid urbanisation, and infrastructural development."
Indeed, real estate investment sales in the city-state have been robust. Data tracked by Colliers Research showed that transactions in Q3 2019 surged by 53.7% - both from the previous quarter as well as the corresponding period a year ago - to S$11.2 billion. The growth was driven by stronger sales across all segments of the property market, as global capital continues to gravitate toward safer and more stable investment markets.
Tricia Song, Head of Research for Singapore at Colliers International, said, “Amid unprecedented levels of uncertainty in the global environment, Singapore remains firmly on investors’ radar owing to its growth potential, stable government, and pro-business policies. Therefore, we expect Singapore real estate – particularly commercial and hospitality assets - to continue to attract interest.”
Investment opportunities in Singapore’s CBD
The central business district (CBD) in Singapore already has all the necessary ingredients to become a vibrant and attractive mixed-use precinct. Guided by the government’s vision, the CBD is becoming a livelier place, not just for work but to live and play in as well.
Efforts to remake urban living and city life has helped to spur real estate investments and brought more businesses and entertainment options into the CBD. Colliers believes Raffles Place, in particular presents many attractive attributes that makes it an investment magnet in its own right.
Ms. Tang added, “As the ‘live-work-play' concept gains traction, we think there is room for more mixed-use developments in Raffles Place. However, development sites in the area are rare and assets are usually tightly held. That said, Colliers is now offering a unique investment opportunity with the ongoing collective sale tender for The Arcade. This site can potentially be redeveloped into a new high-rise tower with a business hotel, office space, and retail shops, injecting more buzz to Raffles Place.”
"Amid unprecedented levels of uncertainty in the global environment, Singapore remains firmly on investors’ radar owing to its growth potential, stable government, and pro-business policies. Therefore, we expect Singapore real estate – particularly commercial and hospitality assets - to continue to attract interest."
Aside from its rich history and prestigious city centre location, Raffles Place also enjoys superb connectivity with the Raffles Place MRT interchange station at its doorstep. Convenience and ease of accessibility are key factors that set Raffles Place apart.
It remains very much sought after by occupiers, who are attracted to set up their base there due to the existing commercial clusters. According to Colliers Research, the Professional Services and Financial Services sectors occupy a lion’s share of the office space in Raffles Place/New Downtown (Grade A). However, trending sectors such as coworking have also anchored themselves in the area, with Distrii and Spaces taking up sizable space in Republic Plaza and One Raffles Place respectively.
Additionally, the limited supply of and still healthy demand for office space in Raffles Place have keep rents firm. Colliers Research’s data showed that Raffles Place/New Downtown (Grade A) rents rose by 7.9% year-on-year in Q3 2019 at S$10.41 per square foot per month.
For these reasons, real estate assets and redevelopment opportunities in Raffles Place are highly sought-after. However, they may not be readily available. Apart from The Arcade, which has been put on the market via collective sale, there are few redevelopment opportunities in Raffles Place.
With investor interest and confidence remaining elevated, Colliers believes real estate opportunities in Singapore will likely be front-and-centre of investment strategies in the coming year.
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