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Big ticket office investment deals drove volume in 2Q 2019

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Author: Ravi Philemon

Investment sales volume in the office sector surged in 2Q19 anchored by big ticket office investment deals. In the largest big ticket office investment deal of the quarter, AEW purchased Chevron House, currently undergoing asset enhancement works, for $1.0 billion from Oxley Holdings.

The second largest big ticket office investment deal saw South Korea’s National Pension Service acquiring a half stake in Frasers Tower for $982.5 million. This came after Frasers Commercial Trust declined to exercise its right of first refusal as the deal would not be yield accretive for its unit holders. There was also suburban office activity with Metro Holdings and Evia Real Estate buying 7 & 9 Tampines Grande for $395.0 million.

big ticket office investmentCommercial deals recorded $3.5 billion in sales, making up 52 per cent of the total real estate investment sales volume of $6.7 billion in 2Q2019, At $6.7 billion, total investment sales increased 49 per cent from the previous quarter, bringing the total 1H 2019 volume to $11.2 billion at the mid-point of 2019. The residential sector clocked $1.7 billion and the industrial sector $0.5 billion.

Christine Li, Cushman & Wakefield’s Head of Research for Singapore and Southeast Asia, commenting on the big ticket office investment deals said “The favourable interest rate environment with potential Fed rate cuts in the coming quarters should continue to boost interest in real estate investment. Prices are riding on the expectation that yield-hungry investors will be diverted from the bond market to the commercial property market due to the widening yield spread.”

“The momentum seen in the commercial sector during 1H2019 is expected to continue with the sale of more big ticket items in the pipeline, such as DUO Tower, 71 Robinson Road, and Anson House. With assets in the CBD highly sought after, investors may increasingly look more closely at the decentralised office market for opportunities similar to 7 & 9 Tampines Grande.”

Arch Capital Management is undertaking due diligence for the purchase of Anson House at around $210 million. In addition, Gaw Capital Partners and Allianz Real Estate are in advanced negotiations to acquire DUO Tower and DUO Galleria for approximately $1.6 billion.

Shaun Poh, Head of Capital Markets for Cushman & Wakefield, commenting on the big ticket office investment deals said: “The URA 2019 Draft Master Plan’s recommendation to rejuvenate the Central Business District certainly created some buzz in the commercial investment market, and the introduction of the CBD Incentive Scheme has attracted the attention of commercial landlords who are interested in redeveloping their properties.”

“This has led to some owners of adjacent smaller plots contemplating the possibility of joining forces to qualify for the scheme. New investors could also be brought into these partnerships or consortiums to provide additional funding. Nevertheless, this wave of rejuvenation will take some time to materialise due to time required to conduct due diligence and obtain planning approvals.”

Besides the big ticket office investment deals, the retail sector also saw much action in the 2nd Quarter

The retail sector was active, with Mitsubishi Estate and CLSA acquiring Chinatown Point Mall for $250.0 million. Also, Frasers Centrepoint Trust purchased a one-third stake in Waterway Point from its sponsor Frasers Property for $440.6 million. In the industrial sector, CapitaLand divested 11 StorHub warehouses for $166.4 million, while ESR-REIT bought a 49% stake in Poh Tiong Choon Logistics Hub for $110.3 million.

Cushman & Wakefield is projecting the full-year 2019 investment volume to come in at around S$25 billion.

Paul Ho, chief mortgage officer at iCompareLoan said “the efforts to rejuvenate the CBD area by the URA through its 2019 Draft Master Plan, would be a major reason why we will continue to see big ticket office investment deals in the coming months. Also, there is a lot of excess capital fluidity here and Singapore has one of the lowest interest rates for home loans in the region.”

The biggest gainers following the property cooling measures of 2018 are likely be owners of strata portfolio of offices and shophouses approved for commercial use. One report said investors looking for alternatives to park their money in the wake of property cooling measures, would divert their attention to the offices and shophouses markets as they are not subjected to the last round of purchase or sales restrictions.

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