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  • Investment sentiment has improved since the abolition of double stamp duty in November 2020.
  • Property funds accounted for 33% of investment volume in Q1 2021, including half of the ten largest deals.
  • Industrial transactions represented 43% of total investment volume, the highest proportion since Q4 2005.
  • CBRE expects new standard rates for lease modification for industrial redevelopment to boost investment in the sector this year.
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• While there were still companies such as those from the technology sector looking to expand their operations, other tenants are in the process of contemplating ‘rightsizing’ as they adopt remote working practices.

• Leasing activity also came from tenants looking for replacement space as they are being forced to move from older buildings slated for redevelopment later this year. Moreover, due to the construction delays in upcoming new buildings, tenants with expiring leases in the near term may renew their leases or look for alternative space now.

• Sentiment amongst landlords of Grade A offi ces has been bolstered by delays in new supply, more workers returning to offi ces as limits on remote working measures get lifted and a healthy offi ce investment market.

• The overall vacancy rate in Savills basket of CBD Grade A offi ce buildings continued to increase for a fourth straight quarter by 0.3 of a percentage point (ppt) to 7.3% in Q1/2021.

• In Q1/2021, although the URA’s offi ce rental index for the Central Region showed a 3.3% quarter-on-quarter (QoQ) increase, the average monthly rent in Savills basket of CBD Grade A offi ces fell for a fi fth consecutive quarter, albeit at a moderated pace of 1.2% QoQ, to S$9.41 per sq ft. We maintain our -5% YoY rental forecast.

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Key Takeaways

  1. Co-investment is a nifty tool of capital management that delivers efficiencies to both LPs and GPs.
  2. A Category I / II AIF is not permitted to invest more than 25% of investible funds in a single investee company. This restricts the formation of dedicated co-investment vehicles.
  3. The IFSCA issued a circular in late 2020 permitting AIFs in GIFT City to disapply the 25% diversity requirement subject to certain conditions.
  4. More recently, SEBI released a consultation paper on the concept of ‘accredited investors’, which contemplates an enhanced degree of flexibility (including on the diversity requirement) for funds populated solely by AIs.
  5. These new measures are likely to facilitate the proliferation of co-investment activity in India.
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  • Tenant enquiries and site inspections continued to rise but momentum slowed compared to the previous two months.
  • Flexible space demand remains steady, with most respondents stating that they had not detected any major change.
  • Respondents reported stronger downward pressure on rents, while incentives are expected to increase in most major markets.
  • After staying positive for two months, leasing sentiment deteriorated slightly, falling back into negative territory. Landlord strength also weakened.
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Manufacturing property as an asset class is rising in importance as more new or rejuvenated production locations outside of China emerge, with transactions of manufacturing assets growing 19% p.a. since 2011.

In the logistics sector, online grocery sales – the fastest-growing category of online retail sales in Asia Pacific – is predicted to rise 30% p.a., driving demand for last mile delivery facilities.

In this report, we examine:
  • China Plus One strategies and the opportunities for industrial property occupiers and owners
  • Opportunities in the last mile and cold chain segments of logistics networks
  • The most attractive cities in Asia Pacific for industrial occupiers and owners
  • Investment trends in key markets
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Most major regional economies continue to make steady progress after a devastating 2020 and ‘reform and recovery’ should emerge as the key themes of the year. While a smooth transition to normality is not assured (as India has shown) a pick-up in transactions volumes suggests a growing confidence among regional real estate investors as Asia continues to outpace both Europe and the US.

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Capital Markets

With economic recovery gaining traction, preliminary real estate investment volume in Singapore increased by 11.5% q-o-q, to $3.523 bn for Q1 2021.

Office

Supported by the tight vacancy, the rental decline in the Grade A (Core CBD) market was arrested after four quarters of correction. Conversely, the Grade B market continued to grapple with higher vacancy rates and rents registered a further decline.

Business Parks

The performance of the business park market softened slightly in Q1 2021. Negative net absorption was noted, contributed by the City Fringe submarket.

Retail

There has been a slowdown in rental declines of prime retail spaces. Landlords continue to maintain a flexible stance towards rental expectations.

Residential

The strong performance in the residential market has further shored up homebuyers’ confidence and take-up of new launches.

Industrial

Leasing activity was stable in Q1 2021, albeit slowing down from the strong performance of the previous quarter. Transactions consisted mainly of renewals and relocations, along with a handful of new set ups and expansions.

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Last year was a tough one for commercial real estate in Singapore and Malaysia. But with record-breaking transaction volumes rounding out 2020 and Covid-19 vaccines rolling out at speed, there’s hope on the horizon.

This week, Yardi brought together some of the region’s brightest economic brains to unpack the data and unearth the trends. Here are the top five insights to help guide your investment decisions in 2021 and beyond…

  1. Both markets are on the move Oxford Economics is predicting a GDP growth rebound of 7.1% in Singapore and 5.4% in Malaysia. Singapore is likely to return to pre-Covid levels in the second quarter and Malaysia in the fourth. But “growth recovery is dependent on health success” and is tied to each country’s efforts to contain Covid infections, warned Oxford Economics’ lead economist for Asia, Sian Fenner. The vaccine rollout is key to recovery, Fenner emphasised. In Singapore, just under 24% of the population has received its first dose. A 80% vaccination rate – and with it herd immunity – will be achieved in Singapore by the third quarter. While just 2-3% of Malaysians are currently vaccinated, 70% of the population will be fully vaccinated by the end of the year, Fenner said.
  2. Economic scars will take time to heal Rebound and recovery in both nations will be influenced by “economic scarring,” Fenner told Yardi’s engaged audience of property professionals. It will take time for businesses to repair their balance sheets and for the labour market to address skills mismatches, she explained. Singapore has followed a V-shaped recovery after an historic fall in GDP. “Singapore has almost recouped its loss in output and its GDP is now close to its pre-pandemic level,” Fenner’s colleague and Oxford Economics economist Sung-Eun Jung said. But this headline figure masks sectoral differences. Manufacturing has posted a “stellar performance” due to strong demand for consumer electronics and pharmaceutical products. The services sector, hit hard by restrictions, will “continue to underperform”. The finance sector, meanwhile, continues to expand. Tightening restrictions in January, while not as disruptive as those in 2020, dipped Malaysia back into recession and “weighed heavily on the services side” of the economy, Fenner added. Infrastructure projects in Malaysia are a bright spot, with both short and long-term projects expected to have a “strong multiplier effect through the economy”.
  3. Asia Pacific investment volumes broke records last year We finished a horror 2020 with Asia Pacific investment volumes down 19% on the previous year, but with a record fourth quarter. “People were saving up their money for the final push,” said David Green-Morgan, managing director of Real Capital Analytics in Asia Pacific. “The deals just kept coming in.” This brought 2020 back into line with a respectable US$150 billion in investment. Nevertheless, Singapore was one of the region’s weakest real estate markets in 2020, with transaction volumes falling 60% year-on-year. Malaysia was not much better, posting a 56% drop, Green-Morgan added.
  4. Real estate performance is not just a Covid story Singapore was one of the most active commercial real estate markets in the region pre-Covid, Green-Morgan said. The city state was sixth placed in 2018 and 2019, but last year slid to 11th place on Real Capital Analytics’ rankings. Singapore’s $3.2 billion in sales volume was down 73% year-on-year. Kuala Lumpur, meanwhile, didn’t even scrape into the top 20. Rather than a Covid story, Singapore’s slip indicates a natural decline that the pandemic has simply “accelerated and heightened,” Green-Morgan said. Singapore enjoyed a “record year” in 2019, so “2020 was always going to be a struggle to match”. Covid-19 continued a downward trajectory in Malaysia’s commercial real estate activity that was already well underway. What has driven that decline? Green-Morgan said the most notable factor was ongoing fluctuations in the political environment that created uncertainty, followed by capital looking further afield to Vietnam. The Malaysian Government is looking to enact policies to make movement of capital easier, and that will be a “big boost” he said.
  5. There’s a deep pool of capital looking for deals Real Capital Analytics is expecting an increase in Singaporean activity this year. Green-Morgan pointed to deals at Samsung Hub, a 30-storey strata building completed in 2005, as a sign of the times. Prices have climbed and recent transactions have secured almost US$3,000 a square foot “quite a significant milestone for the Singapore market,” Green-Morgan added. Despite the challenges, the money continues to flow into Malaysian commercial real estate. The biggest deal last year was for a former air base in Kuala Lumpur, purchased in a joint venture between the Malaysian Government and China’s state-owned enterprise China Railway Engineering Corp. “The land deal was worth US$1.5 billion but it’s got a development value of $36 billion if it all pushes ahead. It’s a huge scheme in the ASEAN context,” Green-Morgan concluded.

Wrapping up the webinar, Yardi’s Devine observed the outlook for both markets is “positive yet challenging but still uncertain”. “One of the main things we’ve learnt over the last 12 months is that certainty is a fairly rare commodity”.

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The best way to increase your investment certainty is with market intelligence. Missed Yardi’s latest Executive Briefing? Don’t miss the next one! Subscribe to our updates to keep your finger on the property market pulse.

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Across the Asia Pacific region, property markets started the year on a strongAcross the Asia Pacific region, property markets started the year on a strongnote, with office, industrial and logistics assets driving the ongoing recovery.

In China, the busy first quarter saw end-users and investors, including foreign investors, closing major deals in keycities. There was a resurgence in investor interest in Hong Kong and Singapore, while Japan witnessed the completionof a number of commercial and residential transactions. In Korea, low interest rates and liquidity continued to fueldemand for office space, a trend likely to persist as competition intensifies for a shrinking pool of assets, while Taiwansaw demand spike for commercial properties. In Australia, a typically quiet quarter witnessed heightened activity in theoffice segment, while New Zealand’s property market, buoyed by policy changes, low interest rates and expectations ofreopened borders, is gearing up for an active year.

In the region’s emerging markets, India saw healthy demand for residential and commercial assets, and investorsremain bullish about the market’s medium to long-term prospects. Vietnam’s property sector is in the midst of arebound supported by government reforms, while Indonesia’s property market is benefiting from a smooth rolloutof vaccines and policy changes that should strengthen purchasing power, improve market confidence and encourageinvestment. Thailand is also witnessing higher levels of market activity, especially in the logistics, warehousing andindustrial sectors, but a rebound in the hospitality sector will depend on the resumption of international travel. In thePhilippines, where the economy shrunk last year for the first time since 1998, the property market is likely to pick upfollowing the easing of quarantine restrictions and the deployment of vaccines. Meanwhile, in Myanmar, the ongoingpolitical turmoil will affect the near-term outlook, but the market is expected to retain its long-term growth potential,especially in the infrastructure and industrial segments.

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