Chinese technology giant Alibaba Group Holding has acquired a 50 per cent stake in a 50-storey prime office tower in Singapore, in a deal that values the property at S$1.68 billion (US$1.2 billion).
The stake in AXA Tower is being viewed as solidifying Alibaba's commitment to the city state. "Singapore is an important market for Alibaba Group," a spokesman said. "This investment will help fulfil our projected business needs across the Alibaba digital economy, as we continue to strengthen operations in Singapore."
Lazada, Alibaba's Southeast Asia e-commerce platform, is the building's anchor tenant. "Lazada ... [takes] up over 15 per cent of the space," said Tricia Song, head of research for Singapore at Colliers. "This stake purchase could be a sign of Alibaba's long-term commitment to Singapore, solidifying Singapore as its capital in Southeast Asia."
Alibaba Singapore, a unit of Alibaba, which also owns the South China Morning Post, acquired the stake from a consortium of investors led by Perennial Real Estate Holdings. Alibaba Singapore and Perennial Newco, a newly formed unit of the consortium, will redevelop the property upon the expected completion of sale in June.
While it is unlikely that premium office spaces in Singapore will see a major upswing this year, given that the global economy is reeling from its worst recession since the Great Depression, its office market is regarded to be in a better position than many when it comes to weathering the crisis.
In the first quarter of the year, premium office rents in Singapore's central business district were unchanged from the fourth quarter of 2019, according to property consultancy Colliers. The consultancy also forecast that office rents in the city state would remain flat this year, defying a general downturn in office markets across the Asia-Pacific region. Vacancy rates in Singapore dropped to 3.1 per cent in the first quarter from 3.4 per cent in the fourth quarter of 2019, and are likely to remain below the 10-year average of 6.2 per cent this year and the next, according to forecasts.
"Most technology companies seek to locate in central business districts, but they may be constrained by the availability of space and the level of rents," said Nai Jia Lee, deputy director of the Institute of Real Estate & Urban Studies at the National University of Singapore. "The purchase of AXA Tower could help [Alibaba] offset [any] volatility in office rents. It probably also helps plan their expansion in the future."
Besides office space, the tower also has a retail podium. It has an existing gross floor area of 1.05 million sq ft " the planned redevelopment will increase this to 1.24 million sq ft. Government approval has also been secured to further increase the tower's AXA Tower's gross floor area to 1.55 million sq ft should it integrate a hotel and residential component under the city's CBD Incentive Scheme.
Alibaba's acquisition also comes in the wake of several announcements by the Singapore government that the city should prepare to work from home for a longer period to mitigate the spread of the deadly Covid-19 pandemic.
Prime Minister Lee Hsien Loong has said the city state must brace itself for a permanent recalibration of its service-oriented economy, as some jobs are likely to be eliminated owing to the rise of remote working and digitalisation. These developments could lead to significant opportunities for Alibaba in Singapore.
Last year, foreign investment in Singapore's office property nearly doubled to US$5.58 billion from US$2.97 billion in the previous year, data from Real Capital Analytics shows. The segment received US$282 million in investment in the first quarter of this year.
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