Warburg’s Perlman Sees Asia With an Edge as Real Estate Markets Shift

 
The macro forces rocking the global economy are similarly at play in Singapore, but the city-state remains a beacon of opportunity for fund managers and real estate investors, Jeffrey Perlman said Tuesday in a keynote interview at Mingtiandi’s Singapore Forum 2022.

Perlman, the managing director and head of Southeast Asia and Asia Pacific real estate at Warburg Pincus, said that while inbound relocations continue to attest to the Lion City’s appeal as a business hub, recent months were “a little sleepy and quiet” in terms of deal activity.

Speaking to a room packed with property investors, the Singapore-based executive made note of the disruptive conditions that have led to a steep rise in borrowing costs, particularly with the US Federal Reserve hiking its key rate by 75 basis points on three occasions since June.

“If you kind of boiled it down in a nutshell, you’ve essentially just reversed 15 years of Fed policy in four months,” Perlman said.

Rent Growth Advantage

In terms of the office market, Perlman singled out rent growth as an advantage that could play in Singapore’s favour as cap rates tighten and asset values settle into a new normal.

“The good thing in Asia more broadly — and Singapore’s really no different — is, unlike more mature markets like the US, we do benefit from shorter-term leases,” he said. “Typically you don’t see an office in Singapore with a 15-year office lease that most would sign in a place like New York. These are three- or four-year leases, so they’re much more positively exposed to being able to capture some of that inflation that we’re all seeing and some of the growth that’s embedded in the market.”

Limited supply and rising construction costs leave even more room for rents to grow and offset potential changes in asset values at Singapore’s office buildings and logistics facilities, according to Perlman, who is also chairman of Warburg-backed industrial giant ESR.

“But let’s not forget,” he cautioned, “real estate is a hyper-local sector. So it really matters where you are, and it also matters what sector you’re in.”

Geopolitical Shelter

The uncertainty over long-term interest rates will be the key consideration when making investment decisions in Singapore, said Perlman, who voiced optimism that the city-state would enjoy a degree of insulation from the geopolitical tensions roiling other parts of the globe.

“The good thing in a world where you do have heightened geopolitical issues is that Asia, and especially Southeast Asia, they’ve been dealing with the US-China dynamic,” he said. “This isn’t new to most of Southeast Asia. So they’ve kind of found that balance of being able to work with both the Americans and also work with the Chinese. I think it’s actually going to be an issue for the rest of the world that’s going to have to deal with that conflict in a way that they haven’t had to deal with, trying to navigate the two sides, in the past.”

As long-term rates come more into focus, possibly in the next three to six months, Perlman expects transaction activity to pick up. He likened the current slowdown in real estate investment to the mechanism seen in public markets.

“The IPO market can close at times, but it tends not to be closed for years at a time,” he said. “In the same way that real estate transactions are really unlikely to stop for years at a time, it’s a very transactional asset class, so as a result of that you may see muted activity for six months or 12 months, but it’s unlikely to see really muted activity for years at a time.”