Singapore

Singapore is still the most active source of outbound capital for three years now.

CBRE comments that these rates are within expectations.

Only Taipei and Shanghai reported prime office rental growth of 0.9%.

The property firm's revenue fell by 38.5% for FY 2020.

Retail rents in Singapore declined 2.5% on average in H2 2020.

This accounts for $12.1b worth of deals in 2020.

But the outlook for the hotel industry in Singapore in the immediate term remains cloudy.

Around 6% of deals were put off in 2020.

Rising supply will also lift vacancies in Tokyo, Asia’s largest office market.

1,609 units were sold during the month, 159.5% more than the 620 units sold in January 2020.

Transactions were down 31% to US$134.6b in 2020, the lowest since 2012’s US$131b.

The shift to a hybrid work model is forcing landlords to upgrade office spaces.

Grade A offices in Seoul, Taipei, Ho Chi Minh City and prime industrial spaces in Australia are top picks.

The shift to online shopping will reduce demand for retail space, a credit negative as per Moody’s. Moody’s Investors Service says in a new report that the coronavirus pandemic is accelerating changes in consumer and worker preferences, with widespread implications for property companies in the region. “Before the pandemic, social risks such as health and safety were low for property companies,” says Stephanie Lau, a Moody’s Vice President and Senior Analyst. “The pandemic has brought these risks to the fore as employers and retailers adjust their physical spaces, processes and IT in response to changing behaviors and expectations, which means that property companies must also adjust.” As the shift to online shopping accelerates, retail space consolidation will reduce property companies’ revenue and cash-flow predictability, as well as increase their operating costs as they invest in IT to retain retail tenants and consumer foot traffic in their shopping malls. For instance, malls in Hong Kong SAR and other Asia Pacific cities have already launched mobile apps to expand their customer loyalty programs. Although the pandemic has raised the proportion of online shopping in certain Asian markets, in-person shopping will not disappear completely. For example, over 70% of surveyed consumers from Singapore and Hong Kong still value in-store shopping, well above the global average of 55%, according to a report by Adyen Singapore and the Centre of Economic and Business Research. As with retail, flexible work arrangements will likely reduce office rents and shorten lease durations as companies seek greater flexibility and adjust long-tenure leases. But population density, along with work cultures and IT infrastructure will affect the pace and degree to which employers and office property companies in Asia Pacific adapt to changing office needs. Subscribers can access the report “Real Estate – Asia Pacific: Pandemic accelerates changes in consumer and worker preferences, raising social risks” here.  

The work-from-home setup is not likely to significantly reduce demand. When COVID hit the world, the accompanying lockdowns brought the term Work(ing) From Home (WFH) from the margin to the mainstream. This sounded alarm bells around the world, from savvy investors like Warren Buffet to analysts and other market watchers, thinking that the age of the CBD office market is over. Those who believe that WFH will significantly reduce demand for office space have valid reasons but Savills notes that their concerns about demand have not been articulated considering the following: 1. The discrete nature of office leasing terms 2. Time domain 3. New demand By not accounting for these factors, any analysis of the market is likely to fall short of the mark. Savills analyzes the Singapore CBD Grade A Office market to look at how it may permutate over time after we adjoin these three extensions to the mainstream WFH belief that there will be a sharp climbdown in demand. From a list of permutations, Savills inputs their prior probabilities as to which of these are likely to play out in future. This approach is in sharp contrast to providing a singular outcome after just one round of reasoning. Here’s more from Savills: DISCRETE NATURE OF LEASING TERMS This is closely related to the time domain factor. This is because thus far, market observers are mentally forming beliefs which assume that WFH can be instantly mapped to reality. Unfortunately, as a typical office lease contract spans between three and (increasingly) five years, demand may remain relatively constant in the short to medium term. To get to the percentage of leases expiring this year and over the next two years, we looked at the leases expiring in terms of Net Lettable Area (NLA) from the five listed Singapore Commercial REITs CBD portfolios. Graph 1 shows the average leases expiring for the REITs (please note that this is a simple average and not weighted by NLA). For 2020, this is just 9.4% but rises to 24.7% by 2021 before falling to 15.6% in 2022. If we assume that the sample from the five commercial S-REITs listed here fairly represents the universe of CDB Grade A office space here, and if tenants upon lease renewal or expiry decide to reduce their CBD Grade A office footprint by 30%, this action alone will lead to the following increase in vacancy levels over the end-2019 occupancy of 4.4%. The cumulative increase in CBD Grade A vacancies for these three years is 14.9%. (These are just numbers calculated from existing tenants reducing their office space usage. We have not factored in new demand and office buildings taken off the market for redevelopment or retrofitting works.) Owing to the discrete nature of lease renewals, the increase in vacancy levels from 2020 to 2022 will be a series of small stepped down functions. That is, instead of the sudden drop in vacancies, the decline is more gradual (See Graph 3). In other words, because of the discrete length of lease terms, what tenants may wish for in terms of rightsizing their office footprint, cannot be carried out immediately. TIME DOMAIN If the sampled profile of lease renewals and the expected vacancy uplifts translate to our basket of CBD Grade A office buildings, then the much-dreaded contraction in demand would not happen overnight, but in phases. With this stretching of time, other factors come into play which may (or may not) be positive for the market and could (or not) mitigate, supplant or more than overcome the decline in the spatial needs of existing market tenants. There are a couple of points that we have to consider when we add time to the analysis. 1. By 2021, most sectors of the economy will have rebounded significantly on a quarter-on-quarter (QoQ) basis. 2. Landlords may take this opportunity when demand is weak to redevelop their buildings. 3. Physical completion of offices originally slated for 2021 and 2022 has been delayed for nine months due to the construction stop work orders. The final move-in date is prolonged as tenants are faced with further delays at the fit-out stage. All these factors work towards dissipating the negative forces acting on office demand. NEW DEMAND The WFH movement and reduced real business activity are likely to lead to a contraction of pre-COVID core office demand. However, the effects of the pandemic have not been uniform across all sectors. In Q2/2020, all sectors of the economy registered negative YoY growth, with the exception of the finance and insurance industry. International trading of equities, derivatives and other financial instruments have been rising during this period. Those departments within financial companies involved in such activities should at least sustain their current levels of office space usage. But moving forward, there could be growing demand from technology and social media related sectors. CONCLUSION The landscape of Singapore’s CBD office market is likely to change a fair bit in a world with COVID. However, don’t expect an overnight contraction in office demand because office lease expiries are phased out over time. When we factor in the possibility of landlords using the softer market conditions to redevelop their buildings, the delay in new supply caused by the construction stop work orders and the emergence of new demand drivers, the overall impact on the Singapore Grade A CBD offi ce market may not be as negative as some would have you believe.  

Investors spent US$116 billion on multifamily assets in the first nine months of 2020. Real estate investors are increasingly hunting for multifamily real estate, a sign of the broader pivot toward defensive strategies amid ongoing economic uncertainty. Investment in all real estate sectors fell 44 percent in the third quarter of the year, compared to the same period in 2019, according to JLL. However, multifamily has fared better than most other sectors, with investment falling, but by 27 percent. Investors picked up US$116 billion of multifamily assets in the first nine months of this year. Multifamily offers investors “a view through and beyond COVID-19”, says Gemma Kendall, head of multifamily investment, EMEA Capital Markets at JLL. "Housing demand remains high in many cities around the world and supply has struggled to keep up. As a result, investors are viewing multifamily opportunities as more resilient than other asset classes." Even at the height of the pandemic, and with the introduction of rent controls in many major cities, there has been little evidence that rents are going unpaid. A recent JLL survey of institutional owners of residential assets found that rent collection stood at 95 percent in the U.K., and at 94 percent in the U.S. In Europe, multifamily investment is up five percent year-to-date. In Asia Pacific, multifamily and build-to-rent investment topped US$7.4 billion in the first nine months of this year, up 83 percent year-on-year. Demographic shifts and institutional support are driving demand for Asia Pacific’s multifamily sector, explains Regina Lim, head of capital markets research, Asia Pacific, JLL. "Fundraising among global investors will further accelerate, with the focus being on both traditional markets like Japan and emerging renting markets like China, Australia and Korea." Japan’s multifamily market, the second largest in the world behind the U.S., is increasingly in the spotlight with investment almost tripling in the first half of this year. In August, German institution Allianz Real Estate invested $160 million in a portfolio of 18 Japanese multifamily assets for its core Asia-Pacific fund, while Blackstone paid US$3 billion in February to repurchase a portfolio of 200 apartments in Osaka and Tokyo from Chinese insurer Anbang. Partnering up While COVID-19 has accelerated investment, the multifamily sector was already attracting global private equity, investment managers, insurers and sovereign wealth funds. In the past decade, multifamily deals as a proportion of global real estate investment have roughly doubled to 25 percent. As it became more mainstream, it started appealing to a broader range of investors. In the U.S., AIMCO this year agreed a 10-year joint venture with a passive institutional investor for a US$2.4 billion portfolio in California. AXA IM Real Assets recently completed a major transaction, buying Dolphin Square, in London. The growth of experienced players is essential if the market is to evolve sufficiently to meet increasing demand, with partnerships becoming a popular choice, says Kendall. "We’ve seen investors employ such strategies to find the expertise that they require in new geographies,” says Kendall. “It’s also a relatively granular sector; portfolio aggregation has been a strategy adopted by many but growing organically takes time." For several institutional groups, the best way to enter the market has been to team up with players who can develop, source transactions and partner on the operational side. Nuveen Real Estate recently joined forces with Iberian investment manager Kronos to develop a €1 billion build-to-rent portfolio of 5,000 homes in Spain.