Local real estate investment sales expected to improve in 2020, research

by • January 29, 2020 • InvestmentComments (0)425

Local real estate investment sales expected to improve across multiple property segments in 2020 says Colliers International

  • Local real estate investment sales hit SGD29.5 billion in 2019, led by the robust commercial property sector. Local investment sales transactions include all private property sales at transaction prices of SGD10 million and above, and all successfully awarded state land tenders
  • Transactions for commercial real estate reached 12-year high in 2019 at SGD11.7 billion, accounting for 40% of total local real estate investment sales
  • Local real estate investment sales projected to cross SGD31 billion in 2020, up 6% YOY
  • Office, retail, hospitality, and industrial properties tipped to be investment bright spots in 2020

Colliers International today published its latest market research report which forecasts bright real estate investment prospects across multiple property sectors in Singapore in 2020. Colliers Research projects that local real estate investment sales could touch SGD31.3 billion in 2020 – representing a 6% year-on-year (YOY) increase.

local real estate investment sales

Image credit: Wikimedia Commons

In 2019, total local real estate investment sales volumes fell by 12.7% YOY to SGD29.5 billion, largely due to the pull back in the residential property sector as cooling measures continued to bite.

Ms Tricia Song, Head of Research for Singapore at Colliers International, said, “We anticipate a few major REIT acquisitions and mergers to materialise in 2020, potentially boosting industrial, commercial, and hospitality deals. Given Singapore’s status as a key gateway city, favourable interest rates, and rejuvenation efforts of the government such as the CBD Incentive Scheme should encourage the redevelopment of eligible older assets in the central business district (CBD) and city fringe areas in the next three to five years.”

In addition, the more benign economic growth forecast for Singapore in 2020 should help to lift investor confidence. According to Oxford Economics, the Singapore economy could expand by 1.4% this year, better than the 0.7% growth in 2019.

The commercial property sector which led sales in 2019 – accounting for 40% of total transactions – is expected to drive investment sales again this year. Of the five largest deals transacted in 2019, three were office and retail properties: Duo Tower & Duo Galleria; Chevron House; and 313@Somerset.

Commercial (Office and Retail)
Despite clocking slower sales in Q4 2019, the commercial sector ended 2019 on a high note, recording the highest investment sales level since 2007 at SGD11.7 billion. Colliers Research expects the remarkable pace of commercial activities to continue in 2020, rising by 5% YOY on healthy office rental market. Redevelopment potential, the push for decentralisation, coupled with investors’ interest and confidence should support an annual growth of 2% per annum over 2019-2024.

In Q4 2019, commercial investment sales fell by 38% YOY to SGD1.4 billion, taking a breather from the strong sales witnessed in the previous quarters. Notable transactions in the quarter included Bugis Junction Towers, Robinson Centre, and The Star Vista.

Jerome Wright, Senior Director of Capital Markets at Colliers International, said, “Global fund flows will continue to turn to Asia in 2020 and Singapore will certainly be the top investment destination in the region, given its strong fundamentals and market opportunities. In particularly, we expect investible assets in prime locations to garner strong interest, supported by strong occupier demand, limited new supply and redevelopment potential.”

Residential investment sales slumped by 70% quarter-on-quarter (QOQ) to SGD0.9 billion in Q4 2019 due to the absence of sizable public land sales. Full-year volume was modest at SGD6.8 billion, a 63% decline YOY.

Colliers Research anticipates that residential investment sales could pick up in 2020, rising by 3% YOY on stable supply of public land sales, sustained luxury homes demand, and developers acquiring sites – via public tenders or the collective sale market – to shore up their development pipeline towards the end of the year. Overall sentiment should improve in the longer term, underpinning an average growth of 12% p.a. in 2019-2024.

Hospitality deals in Q4 2019 decelerated from a very strong Q3, down by 51% QOQ to SGD1.4 billion. Deals done in Q4 included Andaz Hotel, Novotel Singapore Clarke Quay, and W Singapore. On a yearly basis, hospitality investment sales hit an all-time high, surging by 360% to SGD5.7 billion.

Colliers anticipates investment demand for Singapore’s hospitality assets to remain sustained, supported by a muted supply pipeline and steady visitor arrivals on new attractions and more MICE (meetings, incentives, conferences, exhibitions) events. While the new Wuhan coronavirus presents a near-term downside risk, Colliers Research believes that the long-term growth drivers for the tourism sector largely remain intact.

Meanwhile, industrial investment sales jumped by 232% QOQ and 10.7% YOY to SGD2.3 billion in Q4 2019, anchored by Mapletree Commercial Trust’s acquisition of Mapletree Business City (Phase II). This is the highest quarterly industrial sales level since Q3 2017 and it brought total industrial deals in 2019 to SGD4.0 billion, a marginal decline of 3.1% from the record level in 2018. Colliers Research expects stronger investment demand for high-spec industrial spaces in accessible locations.

Ms Song added, “We forecast industrial sales to accelerate in 2020, on big-ticket investments by industrialists, REITs and institutional investors into yield-accretive assets like business parks and data centres. Industrial deals should rise by an average 15% per annum in 2019-2024 as the overall underlying market bottoms out.”

Mr Paul Ho, chief mortgage officer at iCompareLoan, commenting on the local real estate investment sales projections by Colliers said, “several high profile REIT acquisitions and mergers are expected to materialise in 2020 and these are driving the positive mood around prospects for improvement.”

REITs are emerging as safe havens for equity investors due to their low debt levels and steady cash flow. The Singapore REIT sector is viewed favourably by investors, especially as market uncertainties increases, as it allows them to maintain their relatively high dividends.

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