Residential transactions drive H1 2018 investment volume while office rental growth accelerates in Q2 2018

Singapore, 27 June 2018

Dominated by the enbloc residential market, Singapore’s investment sales market extended its robust performance by another quarter. Preliminary investment volume for Q2 2018 was S$10.308 bn, an increase of 11.4% y-o-y. This brings the H1 2018 investment tally to S$20.318 bn, which is about half (57%) of the annual investment sales achieved in 2017.

A total of 15 residential collective sale sites were transacted in Q2 2018, bringing the H12018 tally to 32 deals worth S$9.689 bn. This has already exceeded the 26 collective sales worth S$8.120 bn transacted in the whole of 2017. After three quarters of subdued purchasing activity, Hong Kong developers resumed land acquisitions in Singapore in Q2 2018, setting their sights on the residential sector.

Investment sales for H2 2018 is likely to be buoyed by enbloc residential transactions, Government Land Sales sites, as well as a couple of plausible enbloc office deals in the pipeline. Commercial investment volume will likely make a comeback in the next six months. While most of the office transactions in Q2 2018 were bulk purchases of strata-titled units, the outlook for enbloc office assets remains favourable. Despite the existing low yields, investors remain positive about the growth prospects in the office market in 2018.
Mr. Desmond Sim, Head of CBRE Research Singapore and South East Asia, will “not be surprised that the total investment sales volume for 2018 may be in the same region as 2017.”

Office rental growth accelerates in Q2 2018
With strengthening market fundamentals, islandwide office vacancy held at a healthy level of 5.9% in Q2 2018, unchanged from the previous quarter, in spite of the introduction of Frasers Tower’s 700,000 sq ft into the office stock. Frasers Tower enjoys a healthy pre-commitment rate of close to 80% which includes tenants such as Total, Microsoft, ABN and Sumitomo Corporation.

Moray Armstrong, Managing Director, Advisory & Transaction Services, CBRE Singapore commented, “The fairly tight vacancy environment in the Grade A office market, has encouraged office landlords to continue to press for higher rents as they seek to gain benefit from the market upswing. Grade A Core CBD office rents as tracked by CBRE Research registered a fairly robust quarterly increase of 4.1% in Q2 2018, the fastest pace of growth since Q1 2014. In spite of improving office sentiment, leasing enquiry levels and expansion requirements have not been quite as positive over the past couple of quarters as tenants grapple with a rising rental market environment. Key demand drivers have thus far been concentrated in flexible space operators and technology firms and to a lesser degree insurance companies.”

The flexible space sector continues to be particularly active with a number of new locations announced by existing market players. IWG’s lifestyle co-working brand, Spaces, committed to lease over 35,000 sq ft of space at TripleOne Somerset while JustCo’s newest location spanning 17,000 sq ft will be in MacDonald House. Growth momentum from this sector has yet to show signs of slowing with a strong pipeline of new lease deals under negotiation. Homegrown insurance firms also expanded their operations, with Great Eastern and NTUC Income having leased space at the upcoming Paya Lebar Quarter development which has enjoyed strong take-up in the 1H 2018.

Added Mr Armstrong, “The medium term outlook for rents remains positive, aided by the tapering supply pipeline. Potential risks remain, particularly on the demand side, in light of recent escalations in trade disputes and the possible dampening effects on global economic growth. Both providers and end users of space will need careful navigation through the next 6 to 12 months as the actual strength of the market advancement is tested.”

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