Fed Rate Cut Bolster Investment Sales Especially Industrial And Living Sector Assets Knight Frank
The much-awaited rate cut by the US Federal Reserve has breathed new life into the real estate capital market, with early indications showing a resurgence in investment activity, according to a report by Knight Frank Singapore.
Data compiled by the consultancy reveals that a total of $8.3 billion worth of real estate investment deals were made in the third quarter of 2024. This marks a 24.8% jump from the previous quarter, which Knight Frank attributes to increased investor interest in anticipation of the rate cut. On September 18, the Fed lowered interest rates by half a percentage point to a targeted range of 4.75% to 5%, its first cut in over four years.
The majority of investment deals in the third quarter were private sales worth $6 billion, with public sales accounting for the remaining $2.3 billion. In terms of property sector, the industrial segment experienced the largest increase in activity in the third quarter, with industrial investment sales skyrocketing 427% over the previous quarter to reach $2.5 billion in value.
This surge was driven by the $1.6 billion sale of a portfolio of seven Singapore industrial properties to a joint venture between private equity firm Warburg Pincus and Australian-listed Lendlease Group. The partners purchased the portfolio in August from Soilbuild Business Space REIT, which is controlled by Blackstone and Lim Chap Huat, executive chairman of Soilbuild Group.
Other significant industrial transactions in the third quarter include the purchase of a 51% stake in an industrial site at 20 Tuas South Avenue 14 by ESR-Logos REIT for $444.6 million and Ho Bee Land’s sale of a 49% stake in Elementum, a biomedical sciences development at 1 North Buona Vista Link, to a sovereign wealth fund for $272 million. Both deals took place in August.
Residential investment deals made up $3.2 billion of total sales in the third quarter, a 24.7% decrease from the previous quarter. Of this, over two-thirds ($2.3 billion) were government land sales (GLS). These include the sale of Zion Road (Parcel B) to Allgreen Properties for $730.09 million ($1,304 psf per plot ratio or ppr) and an executive condominium site on Jalan Loyang Besar that sold for $557 million ($729 psf ppr) to a consortium of developers consisting of Qingjian Realty, China Communications Construction Co., and ZACD Group. Both sites were awarded in August.
Another GLS site on Margaret Drive was also sold in August, with a consortium made up of GuocoLand, Hong Leong Holdings’ Intrepid Investments, and Hong Leong Group’s Hong Realty submitting the top bid of $497 million or $1,154 psf ppr. A number of good class bungalow (GCB) deals also contributed to residential investment sales last quarter. For instance, in July, a GCB at Tanglin Hill was sold for $93.9 million, while two GCBs on Belmont Road were sold for $73.7 million and $57.7 million respectively.
The commercial segment made up $2.7 billion of total investment sales in the third quarter, up 37.2% from the previous quarter. This was largely driven by the sale of Ion Orchard by CapitaLand Investment (CLI) to CapitaLand Integrated Commercial Trust in September for an agreed property value of $1.85 billion, subject to approval by CICT unitholders at an extraordinary general meeting to be held in the fourth quarter of 2024.
Other commercial assets sold in the third quarter include Stamford Court for $132 million. The four-storey commercial building was divested in August by Singapore Land Group to Spark61, a joint venture between Elevate Capital and a capital partner.
Knight Frank’s report also notes that the en bloc market remained relatively quiet in the third quarter. There were five collective sale launches, down from six in the previous quarter, and no successful deals were completed.
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Chia Mein Mein, head of capital markets for land and collective sale at Knight Frank Singapore, observes that collective sales for larger residential sites continue to be challenging. However, there is still demand for smaller sites. “Developers are currently reluctant towards larger collective sale plots, but landed houses with sizeable land areas or ‘mini landed en blocs’ of several adjoining houses are still sought after by boutique developers in prime areas where the land size allows for subdivision and redevelopment into multiple homes.”
The initial interest rate cut by the Fed is expected to lead to an increase in transactions. “Deals that have been in the works before the interest rate cut announcement are likely to materialize, particularly for industrial properties and living sector assets,” says Daniel Ding, Knight Frank Singapore’s head of capital markets for land and building and international real estate.
In the living sector, Ding is particularly optimistic about serviced and co-living residences, anticipating that they will benefit from a sustained increase in tourist and cross-border worker numbers. Additionally, while the collective sales market remains challenging, Knight Frank believes that commercial and mixed-use developments may have a higher chance of success in the current market conditions.
Overall, the consultancy forecasts that investment sales momentum will continue to improve in the coming months, with total sales for 2024 expected to fall within its estimated range of $23 billion to $25 billion. “As the bid-ask gap narrows and the prospect of positive carry returns, more investors are likely to make deals,” adds Ding.