Real estate investment activity in Singapore saw a significant decline in Q1 2023 as investors pulled back due to increased financing costs and mounting macroeconomic uncertainties. According to Knight Frank Singapore's Q1 report, total investment sales decreased by 61% to S$4.2 billion compared to S$10.8 billion in the same period last year. This is the lowest quarterly total since Q2 2020, which included Singapore's "circuit breaker", during which only S$1.7 billion in investment sales were recorded.
Investment sales during Q1 2023 were primarily influenced by the sale of Nex, a suburban mall, in January. The mall was jointly acquired by Frasers Centrepoint Trust and Frasers Property, each owning a 50% stake valued at just over S$1 billion, from NTUC unit Mercatus Co-operative.
Additionally, Yangzijiang Shipbuilding, a mainboard-listed company, purchased 39 Robinson Road, a 21-storey freehold commercial building in the Central Business District (CBD), for S$399 million, which was another significant transaction during the quarter. Most other deals during this period were relatively smaller in size.
In the office sector, CBRE highlighted in a previous market report that the majority of transactions were for "smaller strata office units purchased by non-real estate companies or private individuals for (their) own use or investment.”
Office investment volumes in Q1 2023 decreased by 20.1% compared to Q4 2022 and were down 83.6% year-on-year, amounting to just $$558.8 million. CBRE attributed this decline to a lack of significant transactions, stating that "Q1 2022 was strengthened by major office deals such as Twenty Anson and 79 Robinson Road."
Meanwhile, Lam Chern Woon, the Head of Research and Consultancy at Edmund Tie, attributed the drop in investment sales to the "high base effect" from the sale of suburban mall Jurong Point and Swing By @ Thomson Plaza, which were acquired by Link Real Estate Investment Trust from Mercatus in December 2022 for S$2.16 billion. The latter occupies the first and third levels of Thomson Plaza.
CBRE observed that investment volumes, excluding the significant Mercatus divestments, decreased by 18.3% compared to the previous quarter for the St Katherine Docks development. Industrial investment decreased by 58.6%, while retail investments were propped up by the Mercatus asset sales.
On the other hand, residential deals increased by 14.5% quarter-on-quarter, with three freehold collective sales totaling S$583.8 million that offset the declines in sales of good class bungalows (GCB) and luxury apartments. According to CBRE data, shophouse transactions exceeding S$10 million also declined by 38% to S$222.2 million after reaching higher values in 2022.
Lam from Edmund Tie stated that investor sentiment has become cautious due to the collapse of Silicon Valley Bank and the acquisition of Credit Suisse by UBS Group. Knight Frank suggested that following these incidents, "investment activity in Singapore is expected to deteriorate before it recovers."
According to Tay Huey Ying, JLL's Head of Research and Consultancy, investors are still attracted to Singapore for its "safe-haven reputation and robust economic and property market fundamentals." However, she acknowledged that market uncertainties and high interest rates may "continue to constrain their risk appetite and hinder the completion of significant deals.
Knight Frank noted that amid the "prudent domestic sentiment," outbound investment from Singapore continued to be robust in Q1 2023. Major transactions included City Developments Ltd's acquisition of the St Katherine Docks development in London for S$636 million as well as CapitaLand Investment’s purchase of Suning Life Plaza in Beijing for S$553 million.
Knight Frank reported that the total value of outbound investment transactions in the quarter amounted to $$19.3 billion, representing a 76.7% increase from the previous quarter and a 201.6% increase from the same period last year. According to Knight Frank, the surge in outbound investment was likely due to emerging opportunities as assets in gateway locations became more attractively priced amid the turbulent global economic situation.
According to analysts, the real estate market is expected to recover in the long term. However, financing has become more challenging for buyers, investors, developers and banks, and it will continue to be so until there are visible signs of stability in the global economy and financial conditions, noted Knight Frank.
Savills Singapore's Executive Director of Research and Consultancy, Alan Cheong, said that private investors, especially those who do not need to borrow money, are likely to remain active in smaller transactions, such as conservation shophouses and strata-titled offices, despite rising interest rates. He added that their budget probably ranges from less than S$200 million, with the highest probability of closing in the S$5 million to S$40 million range.
Lam from Edmund Tie remarked that the latest flash estimates indicating a sharp slowdown in economic growth to just 0.1% YoY in Q1 2023 "suggest downside risks to the growth outlook, which could further dampen investor sentiment". However, he noted that the economic weakness is mainly concentrated in the manufacturing sector and that leasing demand and sales activity in the other commercial and hospitality sectors are likely to remain resilient in the near term. Additionally, he stated that inflationary pressures have been easing in recent months.
CBRE anticipates that transaction volumes in Singapore will continue to remain low in the short term as investors take a cautious approach. However, as interest rates stabilise and the bid-ask spread narrows, CBRE expects Singapore to remain attractive to global investors seeking a safe haven and long-term growth.
CBRE predicts that transaction volumes will pick up in the second half of 2023, with full-year volumes comparable to those in 2022. Despite recent gloomy economic data, CBRE believes that investments in Singapore are long-term, and the city-state should continue to "stand out as a safe haven" for investors.
Knight Frank, on the other hand, forecasts that investment sales in Singapore for the whole of 2023 will range between S$20 billion and S$22 billion, lower than its earlier projection of S$22 billion to S$25 billion.