Why Singapore’s commercial real estate is red hot

Singapore’s commercial real estate market has bucked the trend this year, and looks set for a strong 2020.

December 23, 2019

Investment in Singapore’s commercial real estate market increased by more 175 percent in the first three quarters of 2019, according to data from JLL, while the city-state has powered past the likes of Tokyo, Sydney, Hong Kong and Melbourne to top Urban Land Institute and PWC’s Best Investment Prospects for 2020.

And while investors have grappled with ongoing political and economic uncertainty around the world, the turmoil has reinforced Singapore’s strength as a safe haven given its transparency, political stability, relative neutrality and resilient currency.

“Private equity and institutional real estate investors have been more active in the last 24 months due to Singapore’s property market recovering following the pick-up in economic activity in 2016 and 2017, and favourable demand-supply dynamics,” says Tay Huey Ying, Head of Research, JLL Singapore.

Singapore’s pole position is supported by the strong interest from global investors for Asian real estate. Investment volumes in Asia Pacific have continued to break records in recent years with the first three quarters of 2019 hitting a record US$125 billion.

“We expect Asia Pacific to get an outsized portion of interest from investors who are seeking growth, and Singapore is definitely a key market they will be looking at,” says Regina Lim, Head of Capital Markets Research, JLL South East Asia. She adds that investors see Singapore’s stable policy regime, innovation eco-system and sustainability initiatives as unique attributes that could continue to solidify the city state’s status as a gateway hub in the region.”

Singapore Close Up

JLL’s research indicates that Singapore would have the strongest CBD Grade A office rental growth outlook in the region. “Grade A CBD supply is expected to stay tight for the coming decade as we expect the government to focus on selling office sites outside the CBD while incentivising owners of older office buildings in the CBD to redevelop the properties into mixed-use developments with residential components,” says Tay.

Demand is set to continue as the government maintains its commitment to developing the tech sector, rolling out initiatives such as Singapore's National AI Strategy and the appointment of Digital Industry Singapore, to help grow the sector.

The city is already a magnet for global technology and professional services firms with Dyson’s relocation of its global headquarters to a former power station garnering worldwide attention.

Tay expects rents and capital values for Grade A CBD offices in Singapore to rise 15 to 20 percent from 2020 to 2023.

On the radar

Besides the office sector, logistics, retail industrial assets are likely to see some interest from investors 2020, but a lack of opportunities might hold the market back, says Lim.

“Investment in logistical assets will be driven by expansionary demand from third party logistics company and e-commerce platforms. But Singapore faces similar challenges like many cities around APAC where sourcing for land sites could be an issue,” says Lim “While investors are keen to acquire well-managed malls in prime locations, such properties are rarely available for sale and matching price expectations will remain challenging. Industrial assets are also on some investors’ radar for their relatively higher yields but buying activity is expected to be selective due to their short land tenure and the need for some sites to comply with stringent rules by the governing body of JTC.”