Updated from : The Business Times, 25 December 2020
WITH increasing optimism this quarter fuelled by abundant liquidity, Singapore real estate investors are set to continue expanding their global portfolio, with increasing interest outside Asia Pacific, though China remains key.
And in the hunt for yield, GIC leads the pack.
In terms of sectors, logistics and data centres garner the most headlines, while office buildings have not disappeared from investors’ radar either.
“Despite the challenging climate, there has been continued improvement in optimism in Q4 2020,” said Greg Hyland, CBRE head of capital markets, Asia Pacific.
“Driven by abundant liquidity and low interest rates, we have seen investor sentiment and deal flow improving, and this is expected to continue into 2021,” he said. In terms of offshore activity, while many investors have adapted to the lack of mobility in 2020, Mr Hyland does not expect volumes to fully recover until travel restrictions are lifted.
The rollout of vaccines will also play a role in investor confidence and increasing mobility, said Mr Hyland.
Driving the overseas hunt is a host of factors, including diversification and attractive yields such as offices in Sydney providing a yield of 4.56 per cent in Q3 2020, compared to just 3.5 per cent in Singapore, said Mr Hyland.
“Singaporean investors are increasingly looking at the US too, and both Mapletree and Capitaland have been active in this market,” he added.
For private investors and developers, diversifying their existing portfolios are often driven by securing well-located freehold assets with a stable income and long-term potential such as large land holdings or under-utilised gross floor area, said Kate Low, JLL’s director, international capital – Australia.
“For larger Singapore institutional investors, cross-border transactions are strategic opportunities to access scale and deploy capital efficiently, while also extending partnerships with reputable local managers to facilitate future growth,” said Ms Low.
GIC and Singapore real estate investment trusts (Reits) are the top outbound investors.
Even in the holiday season, GIC has shown no let-up. On Dec 22, GIC and ESR Cayman said they have entered into an 80:20 strategic partnership to establish a US$750 million joint venture (JV) to develop and acquire industrial and logistics assets in India.
On Dec 18, global real estate investment company Kennedy Wilson and GIC said they have teamed up to acquire and manage urban logistics properties in the UK, with the potential to expand into Ireland and Spain. Targeting US$1 billion in total assets, the joint venture will be 80 per cent owned by GIC, and 20 per cent owned by Kennedy Wilson which will also be responsible for the sourcing, acquisition and management of the assets.
China remains the top destination with GIC snapping up mega assets. In February, GIC which has been investing in China for over two decades bought the LG Twin Towers in Beijing from South Korean conglomerate LG Group, for over RMB8 billion (S$1.6 billion).
Last month, CapitaLand Retail China Trust said it was looking to buy interests in five business park properties in Suzhou, Xian and Hangzhou as well as the remaining 49 per cent stake in the Rock Square mall, at an agreed property value of about 4.95 billion yuan (S$1.01 billion).
Year to Dec 18, Singapore outbound capital flows into real estate abroad reached US$15.3 billion, versus US$23.7 billion for the whole of 2019, according to Real Capital Analytics. Since 2010, the highest outbound volume was US$31 billion in 2017. As in previous years, China took 2020’s lion’s share with US$4.5 billion, followed by Australia (US$2.7 billion) and US (US$2.2 billion). Since 2010, Singapore flows to China real estate peaked in 2019 with US$8.1 billion.
“Resilient pricing and strong leasing momentum are driving Singapore capital to invest in mainland China,” said Mr Hyland.
Among China’s cities, Beijing and Shanghai are favoured, he said. Out of USD1.8 billion from Q1-Q3 2020, US$1.5 billion flowed into Beijing and US$91 million into Shanghai.
For Beijing, Singapore investors are looking at office assets and in Shanghai they have been looking at mixed-use projects, said Mr Hyland.
As for Australia, where Singapore investors are that country’s top source of offshore capital for its commercial real estate, GIC and Reits again dominate.
“Singaporean investment into Australian commercial real estate during 2020 is tracking at around A$3.7 billion, with the potential to grow amid a highly active period in the Australian market as the year draws to a close,” said John Sears, Cushman & Wakefield head of research Australia and New Zealand.
This was led by investment in the office and industrial markets, he said.
“Inbound investment from Singapore has eclipsed all other sources of offshore capital invested into Australian commercial real estate assets combined, and is nearly four times the value of investment from China that took out the number two spot,” said Mr Sears.
The all-time record for Singapore investment into Australian commercial real estate was A$4.7 billion in 2019.
Mark Hansen, Cushman & Wakefield international director, capital markets Australia and New Zealand, said that despite ongoing travel restrictions, investment from Singapore picked up significantly in the second half of 2020 with the acquisition of more than A$2.5 billion in office, industrial, and retail and hotel assets.
“The strength of activity in the final quarter in particular is likely buoyed by investors’ growing confidence in the containment of Covid-19 in Australia and reopening of the local economy,” said Mr Hansen.
GIC and Singapore Reits led some of the year’s landmark deals.
They include GIC’s acquisition of an interest in Rialto Towers office and 222 Exhibition Street Melbourne for a combined A$850 million.
Singapore Reits mirrored GIC’s strong appetite for Australian assets, with Keppel Reit and Ascendas Reit closing in excess of A$800 million of transactions, said Mr Hansen.
Keppel Reit in September acquired Pinnacle Office Park for A$306 million and Ascendas Reit this month announced its A$289 million purchase of 1-5 Thomas Holt Drive, both in the Sydney suburban commercial precinct, Macquarie Park.
Taking into account its latest deal, Ascendas Reit’s offshore real estate holdings make up 35.7 per cent or S$5 billion of its total S$14 billion. Including the Thomas Holt Drive, Ascendas Reit will own 96 properties (S$9 billion) in Singapore, 37 properties (S$2.1 billion) in Australia, 30 properties (S$2.1 billion) in the United States and 38 properties (S$0.8 billion) in the United Kingdom.
This is up from end-2019 when total holdings was S$12.8 billion and overseas accounted for 28 per cent or about S$3.7 billion. Australia was then 12 per cent (S$1.6 billion), the United States at 10 per cent (S$1.3 billion) and the United Kingdom, 6 per cent (S$0.8 billion).
William Tay, Ascendas Reit CEO, told The Business Times that the focus is on developed markets.
“Our focus is in developed markets such as Australia, the US and the UK/Europe which have clear rules of the law, transparent property markets, good infrastructures and good scalability potential,” said Mr Tay.
“Generally, these overseas countries offer deeper markets, scalability potential, freehold land tenure as well as annual rent escalations which help to generate sustainable returns to our unitholders,” he said.
“In Australia, our 32 logistics properties and 4 suburban offices are located in the key cities of Sydney, Melbourne and Brisbane where economic activities are well supported by the large domestic markets,” he said.
Its strategy in the US is to invest in offices/business park properties in top technology cities such as San Francisco.
In the UK, the high e-commerce penetration rate is expected to continue to benefit the logistics sector, said Mr Tay. The proportion of internet sales rose to 28 per cent of total retail sales in Oct 2020 against 21 per cent of retail sales as at Dec 2019.
“Our UK portfolio has a long weighted average lease to expiry of 9.0 years (as at 30 Sep 2020), which will help to mitigate the ongoing uncertainties,” said Mr Tay.