Allianz Fund Buys Stake in SG Tower for $477M, Picks Up Shanghai Office Complex

Allianz Real Estate has moved forward with a deal to acquire a half-stake in one of Singapore’s flagship office properties in a bet on the long-term health of the city’s core office market.

The property investment arm of the European insurance giant announced today that it has reached an agreement to purchase 50 percent of the equity in OUE Bayfront on behalf of a fund invested by Allianz Group and Korea’s National Pension Service at a price of S$634 million ($477 million).

“Over the medium to long term, the investment prospects of Singapore offices will remain favourable, as the market is well positioned from a supply, occupancy cost, market transparency, technology and business environment perspective to cushion any potential adverse impact of the near-term market volatility,” said Rushabh Desai, chief executive for Asia Pacific at Allianz Real Estate, who also pointed to the city’s effective management of the COVID-19 pandemic as a positive sign.

Desai announced Allianz’ pending investment in the 18-storey tower just days after his team reached an agreement to purchase a tech park property in Shanghai, as one of Asia’s biggest buyers of institutional grade real estate assets starts off 2021 with a pair of office deals.

Aiming for Stable Cash Flow

The Allianz vehicle purchasing the stake in OUE Bayfront is AREAP Core I, a $2.3 billion private fund it established with the NPS in June of last year. The seller, OUE Commercial REIT, had first announced that it was in talks to sell the property in November of last year.

“We believe OUE Bayfront will be a great addition to an already strong and stable NPS real estate portfolio,” said Hyo-Joon Ahn, chief investment officer at the Korean institution. “Highest quality real estate assets in irreplaceable locations prove to be resilient even in the current economic climate and provide long-term value and stable cash flow.”

The 399,846 square foot (37,147 square metre) property overlooks Marina Bay in Singapore along Collyer Quay, and is currently 99.9 percent occupied, according to Allianz.

Completed in 2011, OUE Bayfront has 85 years remaining on its leasehold, with the Allianz fund acquiring the property at the equivalent of S$792.56 per square foot and a passing yield of 3.6 percent.

Pursuing Core Singapore Assets

While Singapore office rents are expected to slide this year due to the pandemic tamping down occupier interest, Desai remains bullish on the city’s long-term prospects.

“From an occupancy cost perspective, Singapore is slightly more than half of Hong Kong,” Desai told Mingtiandi in an interview last month. “Now the Singapore government has placed a lot of emphasis on developing the tech sector, and many global and Chinese tech firms are setting up in the city.”

OUE Bayfront is currently home to Bank of America Merrill Lynch, Warburg Pincus and Singapore’s Mandatory Provident Fund (MPF) and commands asking rents of $11 to $11.50 per square foot per month, according to recent market data.

“This transaction demonstrates that global investor appetite for high quality office buildings remains very strong in core gateway markets, and that there is real confidence in the resilience of the Singapore office market,” said Stuart Crow, CEO for capital markets in Asia Pacific for JLL, which advised on the transaction.

Zhangjiang Heats Up

Just before Allianz announced its latest Singapore investment, the company followed through on another element of its investment thesis, by purchasing a 90 percent stake in a tech park property in Shanghai.

Through its AREAP Core I Fund with the NPS, Allianz took the stake in Innov Star, a 61,506 square metre office property on Shenjiang Road in Pudong’s Zhangjiang High Tech Park. The three-building complex was developed by Warburg Pincus-backed builder D&J China, and includes 533 parking spaces, in addition to its office accommodation.

“This transaction is in line with our strategy to align our investments with the New Economy in China,” Desai told Mingtiandi. The three-year-old property is now over 90 percent leased to domestic tech and finance clients including Ping An Puhui, the consumer finance arm of the mainland insurer; mobile content aggregator Qutoutiao and Tencent-backed finance firm We Bank.

Allianz paid approximately RMB 40,000 ($6,174) per square metre of net leasable area in the property, which would bring the deal consideration to around RMB 2.2 billion. The transaction took place at a stabilised entry yield of 4.75 percent and is also said to include a rental guarantee from D&J, according to market sources who spoke with Mingtiandi.

The buyer and seller are understood to have worked together directly on the transaction after Allianz had teamed up with Singapore’s Alpha Investment Partners in 2019 to purchase an 85 percent stake in D&J’s Ronsin Technology Center in Beijing for $1.1 billion.

The deal between Allianz and D&J is one of a number of recent building transactions in Zhangjiang, a thriving tech and biotech hub in eastern Shanghai, which has benefited from the growth of New Economy tenants.

“In recent months we have seen further increase in cap rates for business park properties around Shanghai,” said Cushman & Wakefield capital markets executive director Wayne Chang. “Although there is around 2 million square metres of office supply coming into the Shanghai market this year, demand for space in business park areas like Zhangjiang and Caohejing remains strong, as these locations attract more TMT and pharmaceutical tenants, with investors following this trend.”