Despite rate hikes and economic uncertainty, real estate investment experts from AEW, KKR and Savills see robust demand driving Singapore’s office market as multinational companies migrate to the city-state and employees return to office post-pandemic.
Adrian Lee, head of Singapore investments and asset management at AEW, said the Boston-based fund manager expects a “multi-year rental upcycle” in Singapore supported by trends such as companies expanding their regional headquarters or relocating to the Lion City and changes in workplace dynamics, as well as limited office supply.
“CBD rents are definitely going up. That’s where we see opportunities to consider taking a bit of leasing risks in terms of our investments. We will probably partner up with developers to take on some of these redevelopment or refurbishment projects,” said Lee on a panel at the Mingtiandi Singapore Forum last Tuesday.
Despite real estate investment slumping for the second consecutive quarter, Singapore’s grade A office rents rose 1.8 percent in three months ending 30 September compared to the preceding quarter as companies compete for prime space in the Southeast Asian financial hub, according to a report from Cushman & Wakefield.
Jeremy Lake, managing director of investment sales and capital markets at Savills Singapore, noted an inflow of talent into Singapore, as indicated by apartment rates and a shortage of international schools. “Residential rents in Singapore have been moving up for more than a year…For international schools, some are full and some may have a few spots,” he said.
While very few companies have publicly announced relocations to Singapore from places like Hong Kong, employees have voluntarily opted to move to Singapore in many cases, Savills’ Lake said in response to a question from Amelie Delaunay of ANREV, who moderated the panel.
Cushman & Wakefield in its report saw evidence of tech firms expanding their footprints in Singapore with e-commerce giant Amazon having taken up about 369,000 square feet (34,281 square metes) of office space at IOI Central Boulevard Towers and ByteDance having further expanded in the central business district.
Also driving office demand in Singapore, like in other countries around Asia, is a preference for working from the office, said Jeremy Chee, a principal with the real estate team at KKR.
Living space per person in Singapore is one-third lower than in the US or Australia, which makes working from home less attractive, Chee said. The city-state’s small size and efficient transport system also makes it easy to commute for work, and company cultures encourage employees to interact face to face, he added.
“We’re not sure how working from the office will be since the dust has not settled. But we see some good momentum and expect it to stay,” Chee said.
Emerging Hubs in Focus
The KKR executive considers it critical for investors pursuing value-add strategies in the city-state to stay on top of government plans for urban rejuvenation and new urban centres, and said his firm closely monitors opportunities in all of Singapore’s emerging commercial hubs.
Citing the Punggol Digital District, a ‘smart’ industrial hub planned to begin opening from 2024, Chee pointed to a number of factors in identifying up and coming locations in Singapore. “We look at a couple of things – tenant demand, nearby amenities, and exit liquidity,” he said.
As demonstrated by the success of commercial hubs such as Marina Bay and Changi Business Park, the Singaporean government has consistently pushed for decentralization to ease pressure on infrastructure within the CBD, said AEW’s Lee. To support decentralization, the government has started building new transit lines such as the Jurong Regional Line and Cross Island Line, he noted.
“With that government support and infrastructure going in, we see relative value in investing into well-located Grade A offices in the decentralized locations. And there’s a scarcity factor over there – there’s just a handful of decentralized office in Singapore. While we may not be able to generate as high a rental growth or rental reversion as CBD offices, but the macro theme is still there and we’re very positive on that,” Lee said.
AEW has acted on this thesis this year by selling down its holdings of centre city office buildings for assets in emerging commercial hubs.
In June, Lee’s team bought the Westgate Tower in suburban Singapore’s Jurong East from local investment firm Sun Venture for S$680 million ($488.54 million). With that purchase coming just a few months after AEW offloaded Twenty Anson office tower to KKR in April for S$599 million.
In February of this year AEW sold 55 Market Street near Raffles Place to Japan’s Kajima Corp for S$287 million.
No Immunity From Market Challenges
Government land sales and a recovering from the pandemic have helped Singapore post more encouraging real estate transaction numbers this year than some other markets in Asia, said Savills’ Lake.
“But I don’t think Singapore is immune to the issues which we see in other markets around the region, with the substantial increase in interest rates,” said Lake. Apart from government sales of development land, he expects the rising cost of borrowing to discourage real estate investment in the second half. “Probably through the rest of the year we won’t see much happen as the outlook for interest is still uncertain.”
Note: an earlier version of this story had misspelled KKR as KRR. Mingtiandi regrets the error.