COMMERCIAL PROPERTIES SHINE

Transcription

1 COLLIERS QUARTERLY Tricia Song Director and Head Research Singapore Nathan Nguyen Assistant Manager Research Singapore INVESTMENT SINGAPORE Q NOVEMBER 2018 COMMERCIAL PROPERTIES SHINE Summary & Recommendations Singapore investment sales declined 30% YOY and 35% QOQ to SGD8.0 billion in Q This brings 9M 2018 to SGD31.4 billion, up 14% YOY. > Non-residential sectors made up 57% of total investment sales in Q3 as residential collective sales dried up. > Commercial and industrial sectors picked up the slack and grew the most this year thanks to several high-value deals. The hospitality sector also saw a revival from Q2. > We recommend investors to stay invested in commercial properties, supported by the rental recovery in office leasing market and greater availability of investment choices. For qualified investors, industrial properties offer attractive yields. > Residential collective sales slumped after the cooling measures effective 6 July. Q4 will probably mirror Q3 and we expect 2018 investment sales to match 2017 s record of Total Investment SGD40 billion. Total investment sales should still grow 5% p.a. on average from 2018 to Sales 2022 on demand across all asset classes. Q F F QOQ Change / Total YOY Change / Total Average Annual Growth / 5-Year Average % SGD8.04bn > Commercial (office, retail) investment sales jumped 47% QOQ on a few big-ticket % transactions. We expect 2018 to be 40% down YOY on a high 2017 base. Longer term growth SGD2.15bn Commercial should be steady on investors demand for cyclical growth and stable yields in safe havens. > As expected, residential investment sales fell % 58% QOQ as collective sales volume declined 90% from Q2. We expect developers to remain Residential cautious in the near term but volumes and SGD3.46bn sentiment should pick up by mid > Industrial investment sales rose by 53% QOQ on more interest for modern facilities and GLS % We expect continued interest in 2019 and beyond as the underlying leasing market SGD1.22bn Industrial bottoms out. Annual growth is expected to average 6.4% over Note: 1 sq m = sq ft; USD1 = SGD1.367 (end of quarter). Investment sales transactions include a) all private property sales at transaction prices of SGD5 million and above; and b) all successfully awarded state land tenders. Source: Colliers International Singapore Research +5.0 % SGD40.0bn SGD46.5bn -40 % +5.0 % SGD7.09bn SGD13.7bn +15 % +4.7 % SGD25.0bn SGD25.0bn -30 % +6.4 % SGD2.89bn SGD5.00bn

2 2 Stronger commercial and industrial sales amidst subdued residential Based on Colliers International's data as of 10 October 2018, total property investment sales in Singapore fell 30% YOY to SGD8.0 (USD5.9) billion in Q Even though the residential sector remained the main driver, its share in total investment volume has declined substantially to 43%, from 75% in H1 2018, after the new residential cooling measures implemented on 6 July. On a sequential basis, this is a 35% decline as residential collective sales tumbled by more than 90% QOQ. However, the drop was mitigated partly by a strong pick-up in the commercial and industrial sectors. The government land sales of the mixed-use site at Sengkang Central, residential site at Hillview Rise and the acquisitions of OUE Downtown, Westgate and a portfolio of five logistics properties by REITs were big transactions in Q3. Through H1 2019, we anticipate residential property purchases will remain subdued as developers focus on monetising their inventory and recalibrating their strategies. Sentiment may well pick up by H In the meanwhile, investors will continue to channel their interest to the recovering commercial and industrial assets which have less policy risks. Total Investment Sales by Sector: Q and 9M 2018 Industrial, 1,222, 15% Commercial, 2,150, 27% Q3 2018: SGD8,042mn Mixed Use, 778, 10% Shophouse, 199, 2% Hospitality, 145, 2% Others, 93, 1% Residential, 3,455, 43% Industrial, 2,296, 7% Residential, 20,783, 66% Commercial, 4,046, 13% Mixed Use, 2,692, 9% Shophouse, 983, 3% 9M 2018: SGD31,436mn Hospitality, 428, 1% Others, 208, 1% Source: Colliers International Singapore Research Notes: 1) Information as at 10 October ) Investment sales transactions include a) all private property sales at transaction prices of SGD5 million and above; and b) all successfully awarded state land tenders. 3) Commercial includes office, retail and mixed- office and retail components in a development. Mixed-use refers to properties with two or more types of different uses. Others include properties such as medical centres, HDB shops, petrol stations, etc. 4) Exchange rate as at end of quarter, standing at USD1: SGD ) The percentage may not add up due to rounding. Still strong Q3 GDP growth Singapore s GDP (advanced estimates from Ministry of Trade and Industry) grew 2.6% YOY in Q3 2018, slower than the 4.1% in Q2. The Business Times reported, on 13 October, that this makes Q3 the weakest GDP outcome this year, but it still managed to beat economists consensus expectation of a 2.4% expansion. For the first three quarters of 2018, the Singapore economy clocked growth of 3.8% - the best 9-month performance since The manufacturing sector was still the main growth driver in Q3, though its momentum has slowed to 4.5% YOY, from over 10% YOY in the previous two quarters and 2017, on base effects, a fading electronics cycle, and trade war concerns. Singapore total investment sales in the first nine months of 2018 reached SGD31.4 (USD23.0) billion, up 14% YOY. The five largest deals in Q comprised two commercial transactions, one mixed-use public land sale, one industrial transaction and one residential land sale. Snapshot of Total Investment Sales Total investment sales (SGD million) YOY growth % 50, % 40, % 31, % 30, % 20,000 50% 0% 10,000-50% 0-100% YTD 2018 Source: Colliers International Singapore Research, URA, JTC, HDB The Five Largest Transactions in Q Name of Property Sector Transacted Price (SGD million) Price psf (SGD) OUE Downtown (office component) Commercial ,713 on NLA Westgate (70% stake, retail component) Commercial ,746 on NLA Sengkang Central GLS site Mixed-use warehouses in the West Region Industrial on NLA Hillview Rise GLS site Residential ,068 Source: Colliers International Singapore Research, URA, The Business Times

3 Commercial Snapshot of Total Commercial Investment Sales Institutional investors and REITs behind major acquisitions and divestments (SGD million) 4,000 Private Public % QOQ Change 250% The commercial sector continued building on the momentum in Q2, as total commercial investment sales rose 47.4% QOQ to SGD2.2 (USD1.6) billion, driven mainly by a few big-ticket transactions. Institutional investors and REITs have been active sellers and buyers, and were the key players for all major commercial deals in Q3. 3,000 2,000 2, % 150% 100% 50% > OUE Commercial REIT acquired the office component of OUE Downtown from its sponsor, OUE, for SGD908 (USD664) million in September 2018, surpassing the sale of Twenty Anson in Q2 to become the largest office transaction year-to-date. The purchase price translates to SGD1,713 (USD1,253) per sq ft on net lettable area (NLA). > In the largest retail property transaction year-to-date, CapitaLand Limited divested 70% of its interest in Westgate which is the retail component of the integrated commercial development in Jurong to CapitaLand Mall Trust (CMT) for SGD790 (USD578) million in August This reflects a price of SGD2,746 (USD2,009) per sq ft on NLA and a passing property income yield of 4.3%. > Frasers Commercial Trust divested 55 Market Street, an office and retail development, to a US-based global institutional investor for SGD217 (USD159) million in early July, reflecting a 45% premium to its book value and an annualised NPI yield of 1.7%. On a YOY basis, however, the commercial investment sales volume was 23.4% lower as Q saw the sale of Asia Square Tower 2 for SGD2.1 (USD1.5) billion, which was the largest office deal in Singapore in We expect more major deals to close in Q and In the longer term, commercial properties should continue to remain attractive to investors, supported by steady rental recovery in the leasing office market in the next three years and demand for steady income yields in a safe haven. 1,000 0 Q Q Q Q Q Q Q Source: Colliers International Singapore Research, URA REALIS (as of 10 October 2018) Major Commercial Transactions in Q Property Private Investment Sales OUE Downtown (office component) Westgate (70% stake, retail component) Price (SGD million) Price on NLA (SGD psf) Purchaser 0% -50% -100% -150% ,713 OUE Commercial REIT ,746 CapitaLand Mall Trust 55 Market Street ,020 AEW 7 strata office units in Prudential Tower Source: Colliers International Singapore Research N/A BlackRock 3

4 Residential Residential investment sales declined in the aftermath of the latest cooling measures The total residential investment sales slumped 58% QOQ and 38% YOY to SGD3.5 (USD2.5) billion in Q3 2018, mainly as a result of July s cooling measures that raise taxes for investors and developers in residential sector. This is the lowest volume since Q However, due to the record level witnessed in 1H 2018, total residential investment volume for the first nine months of 2018 reached SGD20.8 (USD15.2) billion, about 96% of total residential sales in the whole Private sector took a back seat in Q3 Based on Colliers International s research, the private residential segment fell 72.2% QOQ and 58.8% YOY to SGD1.8 (USD1.3) billion in Q3, mainly due to subdued collective sales, which saw a significant dip in the share of the whole residential sector from 47.1% in Q2 to 10.7% in Q3. In terms of value and volume, residential collective sales plunged to SGD370 (USD271) million Snapshot of Total Residential Investment Sales (SGD million) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Private Public % QOQ Change 100% Q Q Q Q Q Q Q Source: Colliers International Singapore Research, URA REALIS (as of 10 October 2018) 80% 60% 40% 20% 0% -20% -40% -60% -80% over three transactions in Q3, from the SGD3.9 (USD2.8) billion over 16 transactions recorded in Q2. This brings total collective sales year-to-date to 36 deals worth SGD10.0 (USD7.3) billion. The most notable collective sale during Q3 was that of Casa Meyfort, which was acquired shortly before the cooling measures kicked in, by GuocoLand for SGD320 (USD234) million or a land rate of SGD1,580 (USD1,156) per sq ft per plot ratio (psf ppr). Other notable (non-collective sale) residential deals during the third quarter included the acquisition of 27 units on 6 levels of 336 RV by Far East Organization at SGD124 (USD90.8) million in July In the same month, Selangor Dredging acquired 17 adjacent parcels of residential properties in District 13, including landed properties and Ao Jiang Apartments en bloc, for SGD60.3 (USD44.1) million. We expect residential private investment sales to remain soft in the rest of 2018 and into H as developers focus on launching and selling the inventory they have accumulated over the past two years of active land banking. The recent minimum average unit size guidelines (announced 17 October) could further temper confidence and land bids. Please see our report: Bigger Average Unit Sizes to Cool Land Bids. Nonetheless, with healthy takeup at the new launches, we expect developers will be ready for more price adjusted land acquisitions by late Total Residential Investment Sales by Type in Q Enbloc (Strata) 4% Landed housing 13% Enbloc 2% Strata 13% GCB 10% Q3 2018: SGD3,455mn Collective Sale 11% Public Land Sales 47% Source: Colliers International Singapore Research, URA REALIS (as of 10 October 2018) 4

5 GCBs soared to record level since 2012 The Good Class Bungalow (GCB) segment jumped 109% QOQ and 188% YOY to SGD354 (USD259) million in Q3 2018, as strong demand matches up to sellers asking prices. A total of 13 GCBs were transacted in Q3 2018, compared to 8 in Q and 7 in Q This is the highest volume since Q when 18 GCBs totalling SGD364 (USD266) million were transacted. This also brings the year-to-date tally to 30 deals in GCB Areas worth SGD773 (USD566) million, up 32% YOY. However, we only include transactions with caveats lodged. According to The Business Times, there are at least SGD215 (USD157) million in GCB transactions completed in the first nine months of 2018 for which caveats were not lodged by buyers. The largest GCB transacted in Q3 was the estate of the late Lim Kim San along Dalvey Road, which was sold at SGD93.9 (USD68.7) million, or SGD1,804 (USD1,320) per sq ft on land. Despite the new cooling measures, GCBs with good quality and strong attributes still command high value and strong demand. Residential GLS Sites Awarded in Q Land Parcel Date of Closing No. of bidders Hillview Rise (dual-envelope process, Concept-and-Price tender) Top bid % premium over 2nd highest bid 03-May % Jalan Jurong Kechil 04-Sep % Dairy Farm Road 04-Sep % Canberra Link (EC) 04-Sep % Anchorvale Crescent (EC) 14-Sep % Source: Colliers International Singapore Research, URA, HDB Public land sales: EC GLS sites in high demand with record-low winning margin In Q3 2018, the public residential investment sales segment fell by 2.1% QOQ to SGD1.63 (USD1.2) billion even as more Government Land Sales (GLS) sites were sold (five vs three) due to more executive condominium (EC) sites and the absence of a super-large site. Compared to Q3 last year where only two GLS sites were sold, public land sales grew 42.4% YOY. The largest value in Q3 was recorded at the Hillview Rise site, which received nine concept proposals from eight bidders under a dual-envelope system on 3 May and awarded on 3 July. Hong Leong Group submitted the top bid of SGD460 (USD337) million or SGD1,068 (USD781) psf ppr, 13.3% above the next bid. Bidding turnouts for private residential land were noticeably subdued after 6 July, reflecting developers cautious approach after the introduction of residential cooling measures. The sites at Jalan Jurong Kechil and Dairy Farm Road saw only three and five bids submitted, respectively, on 4 September. COHL Singapore and CSC Land Group (Singapore) were awarded the Jalan Jurong Kechil site for SGD215 (USD157) million or SGD1,002 psf ppr. United Engineers' UED Residential trumped other bidders for the Dairy Farm Road site at SGD369 (USD270) million or SGD830 psf ppr. Conversely, the sentiment for ECs remained positive. The Canberra Link EC site, which also closed on 4 September, still attracted nine competitive bids with Hoi Hup Realty and Sunway Developments clinching the site at SGD271 (USD198) million or SGD558 psf ppr. Similarly, the tender for the EC site at Anchorvale Crescent pulled in seven tenderers and saw a joint venture between Evia Real Estate and Gamuda topping the bid at SGD319 (USD233) million, winning by a remarkably close margin of $899 and reflecting a price of SGD576 (USD422) psf ppr. This is the narrowest margin ever recorded for a GLS site. 5

6 Industrial Sustained momentum for industrial properties in Q3 The total industrial investment sales value in Q jumped 52.3% QOQ to SGD1.2 (USD0.9) billion. However, on a YOY basis, total volume was 57.9% lower as Q saw the record high level of industrial investment sales, boosted by ExxonMobil s acquisition of a petrochemical plant for SGD2.0 (USD1.4) billion. Total industrial investment sales in the first 9 months of 2018 reached SGD2.3 (USD1.7) billion. Industrial REITs continue to reconstitute their portfolios through selective acquisitions and divestments in Q In the largest industrial transaction year-to-date, Mapletree Logistics Trust acquired five modern ramp-up warehouses in the West Region from Hong Kong-listed CWT International for a total of SGD730 (USD534) million, translating to an average price of SGD259 (USD189) per sq ft on NLA. The properties are located near Jurong Port and PSA Terminals. Another major en bloc transaction was Ascendas- Singbridge Group s acquisition of Geo-Tele Centre, a data centre in the Tai Seng area, from Sabana REIT for SGD99.6 (USD72.9) million. We expect demand for industrial properties to grow as they can offer attractive yields to qualified investors and rents appear to be stabilising. Interest will noticeably come from REITs demand for investible industrial assets in higher-end sectors such as data centres, high-spec facilities and modern ramp-up logistics properties. Rising interest for IGLS sites In Q3 2018, transactions in the Industrial Government Land Sales (IGLS) recorded a total of SGD83.6 (USD61.1) million, up 141% QOQ and almost 10 times YOY on very low bases. Three industrial sites with years land tenure were awarded, with the largest site at Braddell Road handed to Boustead Projects Limited for SGD53.6 (USD39.2) million. The Braddell Road site attracted eight bids in total while the remaining two sites saw two bidders each. Yee Lee Development won the site at Tuas South Link 1 (Plot 13) for SGD26.8 (USD19.6) million while Blu World was awarded the site at Tampines Industrial Drive (Plot 10) for SGD3.2 (USD2.3) million. The tenders for two sites at Tanjong Penjuru (Plot 2) and Woodlands Industrial Park E2/E5 closed with one bid submitted each. The single bids at both sites were rejected as they were both below the reserve price. Snapshot of Total Industrial Investment Sales (SGD million) Private Public % QOQ Change 3,500 1,600% 3,000 1,400% 2,500 1,200% 1,000% 2, % 1, % 1, % 200% % 0-200% Q Q Q Q Q Q Q Source: Colliers International Singapore Research, JTC, URA REALIS (as of 10 October 2018) Major Industrial Transactions in Q Property Price (SGD million) Price psf (SGD) Purchaser Private Investment Sales 5 warehouses in West Region on NLA (average) Source: Colliers International Singapore Research, JTC, URA REALIS (as of 10 October 2018) Mapletree Logistics Trust Geo-Tele Centre on GFA Ascendas-Singbridge Group Tien Wah Press building on land Logos Property Forte on NLA SB (29NIR) Investment Pte Ltd Industrial Government Land Sales Braddell Road on GFA Boustead Projects Limited Tuas South Link 1 (Plot 13) on GFA Yee Lee Development Pte Ltd Tampines Industrial Drive (Plot 10) on GFA Blu World Pte Ltd 6

7 Mixed-use Public land site remained popular In Q3 2018, mixed-use investment sales stood at SGD778 (USD569) million, comprising a single public land sale of a commercial and residential site at Sengkang Central, which is located next to Buangkok MRT station. The 3.7- hectare site was offered through a dual-envelope concept-and-price tender which closed on 21 June with seven bids from six consortiums. A tie-up between CapitaLand and City Developments Limited was eventually awarded the site for SGD924 (USD676) psf ppr on 16 August. Based on Colliers International's research, total mixed-use investment sales in the first nine months of 2018 reached SGD2.7 (USD2.0) billion, the highest level witnessed for the same period since The Sengkang Central plot, which is the largest site awarded since 2015, will be developed into an integrated community and transport hub. Hospitality Interest picks up for hospitality assets and land With recovering hotel revenue per available room (RevPAR) on the back of tightening net new supply and buoyant visitor arrivals, interest for hotel assets has picked up. The total hospitality investments sales value in Q jumped to SGD145 (USD106) million from nothing in Q and Q3 2017, bringing total hospitality sales volume in the first nine months of 2018 to SGD428 (USD313) million, surpassing even full-year hospitality investment sales in Local property investment company 8M Real Estate acquired Wanderlust Hotel for SGD37 (USD27) million while Wangz Hotel was transacted at SGD46 (USD34) million. In September 2018, Ascott Residence Trust acquired a prime greenfield site at Nepal Hill from JTC for its maiden development project lyf at SGD62.4 (USD45.6) million. In the same month, URA launched the Club Street site in Chinatown under the GLS for hotel use. Shophouses Palatable quantum and vintage charm drive interest After the new cooling measures in the residential sector, we continue to see investor interest diverted to shophouses, which are hybrids of residential, commercial and hospitality sectors. Based on Colliers International's research, shophouse transactions with value of SGD5 million and above declined 35.1% QOQ but grew 40.7% YOY to SGD199 (USD145) million in Q Total shophouse transactions in the first nine months of 2018 came to SGD983 (USD719) million, surpassing even full-year shophouse investment volume in all previous years, indicating strong demand for this class of asset.. The largest shophouse transaction during Q3 was the sale of 3 adjoining units at 33 Liang Seah Street for SGD29 (USD21) million or SGD2,522 (USD1,845) per sq ft on estimated built-up area. In September 2018, a shophouse at 21 Boon Tat Street in the Telok Ayer Conservation Area was transacted at SGD16.5 (USD12.1) million, reflecting a price of SGD4,259 (USD3,116) per sq ft on estimated built-up area. This is a new record high for price per sq ft for conservation shophouses in District 1. Major Shophouse Transactions in Q Property Private Investment Sales Price (SGD million) Price psf (SGD) Source: Colliers International Singapore Research, URA REALIS (as of 10 October 2018) Purchaser 33 Liang Seah Street ,522 on built-up area Heap Seng Group 64 Club Street ,880 on built-up area Chan family of Hongkong 21 Boon Tat Street ,259 on built-up area Mr James Heng 96 Amoy Street ,536 on land N/A 7

8 Primary Authors: For further information, please contact: Tricia Song Director and Head Research Singapore Nathan Nguyen Assistant Manager Research Singapore Tang Wei Leng Managing Director Singapore Govinda Singh Executive Director Consulting, Valuation & Advisory Services Singapore About Colliers International Group Inc. Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is a top tier global real estate services and investment management company operating in 69 countries with a workforce of more than 12,000 professionals. Colliers is the fastest-growing publicly listed global real estate services and investment management company, with 2017 corporate revenues of $2.3 billion ($2.7 billion including affiliates). With an enterprising culture and significant employee ownership and control, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide, and through its investment management services platform, has more than $20 billion of assets under management from the world s most respected institutional real estate investors. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice to accelerate the success of its clients. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 13 consecutive years, more than any other real estate services firm. Colliers is ranked the number one property manager in the world by Commercial Property Executive for two years in a row. Colliers is led by an experienced leadership team with significant equity ownership and a proven record of delivering more than 20% annualized returns for shareholders, over more than 20 years. For the latest news from Colliers, visit our website or follow us on Copyright 2018 Colliers International The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.