Stand-off between buyers and sellers in big-ticket property investment deals

/ EdgeProp Singapore |
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SINGAPORE (EDGEPROP) - On Nov 8, three strata-titled office units on the sixth floor of 15 Scotts in the prime Scotts Road and Orchard Road neighbourhood were sold for close to $10.06 million. The price translates to $4,028 psf for the freehold units with a total strata area of 2,497 sq ft. Cushman & Wakefield (C&W) brokered the deal.
The buyer is said to be an investor and a mainland Chinese-turned-Singapore citizen. The three units at 15 Scotts are currently tenanted to a Pilates studio, with its lease expiring in 2025. The vendor of the units is Top Global. “It’s a new record for the building as well as for strata-titled office space in the Orchard area,” says Shaun Poh, executive director of capital markets at C&W.
Early last month, listed watch retailer Cortina Holdings purchased the entire floor on the fourth level of 15 Scotts for $49 million ($3,568 psf). The 13,735 sq ft office space is intended for the company’s use and to accommodate future expansion. The vendor was the Singapore Institute of Management, and CBRE brokered the deal.
At 15 Scotts, a new record price of $4,028 psf was achieved recently when a buyer purchased three strata units on the sixth floor for close to $10.06 million (Photo: Albert Chua/EdgeProp Singapore)
At Suntec City, a Thai national reportedly paid $39.7 million or $3,850 psf for a top-floor, 10,312 sq ft, strata office unit at Tower One in mid-October. The deal is said to be brokered by Sakal Real Estate Partners. The new record price of $3,850 psf supersedes the previous record of $3,350 psf achieved in August for the sale of a 12,282 sq ft office space on the 31st floor of Tower Two for $41.48 million.
“Penthouse floors are rarely available,” says Sakal Real Estate Partners’ managing partner Steven Ming. “Suntec City has an unrivalled ecosystem; it’s like a city within a city, with office towers, a shopping mall and a convention centre under one roof. It is next to several international branded hotels, with subterranean connectivity to MRT stations and other malls. It also has ease of access to major expressways.”
Such strata-titled office deals and those of commercial shophouses are expected to continue, says C&W’s Poh. He adds that buyers in the $10 million to $40 million price range tend to pay in cash or require minimal financing.
At Suntec City, a new record price of $3,850 psf was achieved for the penthouse floor of Tower One, with the buyer being a Thai national (Photo: Samuel Isaac Chua/EdgeProp Singapore)
In the shophouse market, demand for commercial shophouses in prime CBD districts 1 and 2 have been tempered by the reduced stock for sale, says Loyalle Chin, senior associate division director of PropNex, who specialises in shophouses. “However, investor demand in the city fringe areas remains strong, sustained by local ultra-high net worth individuals (UHNWI) and property funds.” (Find Singapore commercial properties with our commercial directory)
For example, Singapore-listed Lian Beng Group sold a four-storey commercial building on Joo Chiat Road for $42 million in mid-September. The buyer is said to be a UHNWI investor who purchased the shophouse “for wealth preservation”. The deal was brokered jointly by CBRE and Savills Singapore.
Real estate investment group 8M Real Estate is said to have purchased a row of five conservation shophouses at 109 to 117 Jalan Besar for $40 million, with a caveat lodged at the end of September. The deal was brokered by Simon Monteiro of List Sotheby’s International Realty.
building at Joo Chiat Road - EDGEPROP SINGAPORE
The building at Joo Chiat Road was sold by Lian Beng to a high net-worth investor in September for $42 million (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Meanwhile, Savills brokered the sale of a pair of shophouses at 29 and 31 Tanjong Pagar Road for $35.88 million, another pair of shophouses at Ann Siang Road for an undisclosed price and the shophouse at 40 Craig Road for $11 million. All these deals were done in September.
Indeed, private buyers such as UHNWI and family offices in Singapore, the region and further afield in Europe regard the city-state as “Asia’s Switzerland”, says Jeremy Lake, Savills Singapore’s managing director of investment sales and capital markets.
“They still feel that Singapore is a good place to buy a small building, strata office space or shophouse and are looking at portfolio diversification as well as wealth preservation,” adds Lake. “As they are often cash buyers, they will continue to be active in the $10 million to the $150 million price bracket. Of course, some have even larger budgets”.
Lake: Private buyers such as UHNWI and family offices in Singapore, the region and further afield in Europe regard the city-state as “Asia’s Switzerland (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Ming of Sakal Real Estate agrees. “These private buyers are less sensitive to interest rate moves as they are buying largely with cash or with very little leverage and may refinance later when they feel interest rates have stabilised,” he says.

Big-ticket office deals at a standstill

For more significant capital market deals of at least $500 million, for example, it has been at a standstill with institutional buyers moving to the sidelines. “It’s harder to underwrite such deals as interest rates are much higher now,” says Lake.
The sector that is most affected by the rising interest rates is the office market, mainly the institutional-grade prime office buildings.
Bugis Junction Tower - EDGEPROP SINGAPORE
The $680-million deal at Bugis Junction Tower fell through amid a “challenging interest rate environment” (Photo: Samuel Isaac Chua/EdgeProp Singapore)
C&W’s Poh says: “When we were marketing a few properties in June, the three-month compounded SORA was at about 0.6% to 0.7%. The three-month compounded SORA is close to 2.6% today, which means financing costs are near 4%. It will be hard to convince people to buy a core Grade-A office building at 3% yield.”
That could explain why several sizeable office deals have fallen through in recent months, for instance, the sale of the 15-storey office building Bugis Junction Towers for $680 million and the 24-storey office building Parkview Square for $900 million. Both deals were said to have been at the due diligence stage when they were hit by the “challenging interest rate environment”, especially in late September and early October when the pace of SORA increases accelerated.
ARA Asset Management and Chelsfield were joint owners of the 11-storey office building Lazada One at 51 Bras Basah Road. The 50:50 joint venture partners had placed the property on the market for $800 million or $3,077 psf based on the net lettable area at the end of last year. Last month, ARA Asset Management was said to have sold its 50% stake in the building to a Japanese fund manager, Kenedix. ARA is a shareholder of Kenedix, with a 30% stake. ARA, in turn, is an ESR Group company. The purchase price of the 50% stake in Lazada One was said to be $2,800 psf. Chelsfield meanwhile, is still holding its 50% stake in the property.
Lazada One at 51 Bras Basah Road - EDGEPROP SINGAPORE
Lazada One at 51 Bras Basah Road, where ARA Asset Management recently sold its 50% stake to Kenedix for $2,800 psf (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Another office building, the 35-storey Robinson 77 was offered for sale by expression of interest (EOI) at $898 million ($2,925 psf). While there were offers at the close of the EOI in April, they were below the seller’s price expectation, according to a source. The office buildings at 78 Shenton Way in the CBD and Asia Green at 7 and 9 Tampines Grande were also put up for sale by EOI a few months ago. However, there was also a price gap between the sellers’ targeted price and the buyers’ offer prices. Hence, no buyer emerged at the close of the EOI for both properties.
While there is continued interest in the office sector, the interest rate environment may impact transactions in the short term. Michael Tay, CBRE Singapore head of capital markets, says investors are watching the market closely as they await the stabilisation or tapering off in interest rate hikes.
On the demand side, they are waiting for “more signs of positive rental reversions,” he says. “No doubt, there are headwinds and the tech sector is undergoing challenges at the moment, but the market is seeing a diversity of office demand from other sectors such as wealth management, insurance, professional services, and others,” Tay adds. “Also, office supply will remain tight for the next few years.”
The expression of interest for 35-storey Robinson 77, which had a price tag of $898 million ($2,925 psf), closed with offers, but they were below the sellers’ price expectation (Photo: Samuel Isaac Chua/EdgeProp Singapore)


C&W’s Poh reckons big-ticket deals will be limited over the next six months until at least 1Q2023. “Sellers are taking their assets off the market and waiting until they see greater clarity in terms of interest rate direction,” he says. “Buyers are already behaving opportunistically and making offers that are substantially below the seller’s price expectation.”
However, he says smaller deals in the $100 million to $200 million price range should persist. For instance, C&W launched the sale of Serene Centre at a reserve price of $120 million on Sept 28, which coincided with the Singapore Grand Prix F1 weekend. The four-storey mixed-use development, located at the corner of Bukit Timah Road and Farrer Road, received an overwhelming response, says Poh, with enquiries from a mix of foreign funds and local UHNWIs.
Poh: Sellers are taking their assets off the market and waiting until they see greater clarity in terms of interest rate direction. Buyers are already behaving opportunistically and making offers that are substantially below the seller’s price expectation (Photo: Cushman & Wakefield)
CBRE’s Tay says the “solid economic fundamentals” is sustaining the interest of both institutional and private investors in the office sector. He does not see asset repricing happening at the moment. “Asset owners are well capitalised, and this is a market that takes pride in its financial discipline. The stand-off between buyers and sellers may be short-lived,” he adds.
Sakal’s Ming agrees. “We do not expect asset repricing, if any, to be widespread,” he says. “Vendors would rather defer their asset disposal plans till interest rates stabilise and liquidity returns, rather than take in any negative repricing.”
Ming adds that few real estate markets today still draw the attention of global institutional capital, Singapore being one of them. “Whilst most funds are sidelined from investing in the current climate, astute investors are taking the opportunity to negotiate deals with creative capital strategies.”
The $900-million office deal at Parkview Square fell through (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Cap rates expected to rise

CBRE Research’s Asia Pacific capitalisation (cap) rate survey for 3Q2022, released in October, indicates that around 60% of investors have become more risk-averse amid the rising interest rate environment. Interest rates affect property valuations in a couple of ways. First, rising interest rates make it more expensive to finance a property. A higher financing cost will make the property in- evitably more expensive.
Cap rates are used to value properties based on the income capitalisation method. “Theoretically, cap rates are likely to rise with rising interest and risk-free rates, but often, with a time-lapse,” says an industry observer. “Based on the formula, rising cap rates usually cause property valuations to fall. The higher financing cost may offset any savings from falling property prices.”
Cap rates have increased from 10 bps (basis points) to 200 bps across most Asia Pacific cities, according to the CBRE report. About 58% of those surveyed expect cap rates to continue widening. The exception is Japan, where interest rates have not increased and are likely to remain stable.
In Singapore, cap rates for Grade-A offices have widened by 25 bps, and cap rates for malls are also expected to increase. “The Singapore market has been very resilient, and a lot of private money has been invested in property,” says Henry Chin, CBRE global head of investor thought leadership and head of research, Asia Pacific. “But if you’re comparing your assets in Singapore relative to other cities in the world, I believe Singapore is due for an asset repricing.”
Chin: if you’re comparing your assets in Singapore relative to other cities in the world, I believe Singapore is due for an asset repricing (Photo: Samuel Isaac Chua/EdgeProp Singapore)
For now, there is a price gap of about 10% to 20% between buyers and sellers. “Asset owners are looking in the rearview mirror at prices six months ago when interest rates were low, and prices were higher,” says Savills’ Lake. “Buyers are looking straight ahead and pricing in the higher interest rates. The price they are willing to pay now is lower than what they were prepared to pay six months ago.”
CBRE’s Chin sees a flight to quality in Singapore and across Asia. “We tell our clients to focus on quality assets, from office to retail and logistics,” he says. “They may only see a 5% to 10% price correction at most, but these assets will be the first to see prices recover in an upturn.”

Private wealth fuelling deals

Tay: Asset owners are well-capitalised and this is a market that takes pride in its financial discipline. The stand-off between buyers and sellers may be short-lived (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Singapore is seeing significant inbound capital from private wealth and family offices. The pace of new family offices (FOs) being established in Singapore has been relatively consistent since April when the Monetary Authority of Singapore (MAS) said that 100 FOs were approved for the first four months of 2022. “This is significant since the number of FOs was around 400 at the end of 2020 and increased to 700 by the end of 2021,” says Kia Meng Loh, co-head of Private Wealth and Family Office practices at Dentons Rodyk, a Big Five law firm in Singapore and part of global law firm Dentons.
“If we extrapolate the approvals, we could end 2022 with more than 1,000 FOs in Singapore,” says Loh. This is despite MAS introducing additional requirements, including higher assets under management, for FOs to enjoy tax incentives.
There was a spike in enquiries from the wealthy from China and Taiwan recently, “likely due to the socio-political climate in these two countries”, adds Loh.
Ming: For prime and scarcely available assets, we cannot rule out that record prices will still be achieved (Photo: Samuel Isaac Chua/EdgeProp Singapore)
“We are seeing a broad spectrum of high net worth and family offices from China and Southeast Asia, including some from further afield,” says Sakal’s Ming. “They are in the market looking for suitable real estate investments. Geopolitical tensions elsewhere and the strong Singapore dollar have made these investors’ presence even more pronounced.”
He continues: “It is not unusual for these UHNWIs and FOs to decide on acquiring a secondary residence first, and beyond that, to invest into either strata offices or shophouses. Some may even go on to acquire larger assets.”
Private wealth is therefore expected to be the dominant capital source for local real estate investments in the near term, adds Ming, particularly for asset value of under $100 million. “With record capital inflows, luxury residential properties, strata-titled commercial space and shophouses are expected to remain price resilient,” he says. “For prime and scarcely available assets, we cannot rule out that record prices will still be achieved.”

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