Fed rate cut to bolster investment sales, especially for industrial and living sector assets: Knight Frank

/ EdgeProp Singapore |

October 8, 2024 7:05 PM SGT

Industrial real estate investment deals saw a 427% q-o-q surge to $2.5 billion in 3Q2024, propelled by the sale of a portfolio of Soilbuild Business Space REIT assets for $1.6 billion. The portfolio includes Solaris @ one-north, (Picture: The Edge Singapore)

The long-awaited interest rate cut by the US Federal Reserve is revitalising the real estate capital market, with investment activity already displaying early signs of a resurgence, as detailed in a report by Knight Frank Singapore.

Data compiled by the consultancy indicate that a total of $8.3 billion worth of real estate investment deals were transacted in 3Q2024. This points to a 24.8% surge q-o-q, which Knight Frank attributes to a rise in investor activity in anticipation of the rate cut. On Sept 18, the Fed reduced interest rates by half a percentage point to a targeted range of 4.75% to 5%, marking its first cut in over four years.

The bulk of investment deals in 3Q2024 were private sales totalling $6 billion, with public sales making up the remaining $2.3 billion. By property sector, the industrial segment saw the biggest spike in activity in 3Q2024, with industrial investment sales shooting up 427% q-o-q to hit $2.5 billion in value.

The spike follows the $1.6 billion sale of a portfolio of seven Singapore industrial properties to a joint venture by global 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 notable industrial transactions in 3Q2024 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 and commercial deals

Residential investment deals made up $3.2 billion of total sales in 3Q2024, falling 24.7% q-o-q. Over two-thirds, or $2.3 billion, comprised government land sales (GLS). They include Zion Road (Parcel B), which was awarded 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. The site went to a consortium made up of GuocoLand, Hong Leong Holdings’ Intrepid Investments and Hong Leong Group’s Hong Realty, who submitted a top bid of $497 million or $1,154 psf ppr.

A number of good class bungalow (GCBs) deals also took place last quarter, contributing to residential investment sales. For instance, in July, a GCB at Tanglin Hill was sold for $93.9 million. On Belmont Road, two GCBs were also sold in July for $73.7 million and $57.7 million respectively, says Knight Frank.

Meanwhile, commercial deals made up $2.7 billion of total investment sales in 3Q2024, jumping 37.2% q-o-q. The segment was boosted by the sale of Ion Orchard by CapitaLand Investment (CLI) to CapitaLand Integrated Commercial Trust in September at an agreed property value of $1.85 billion, subject to approval by CICT unitholders at an extraordinary general meeting to be held in 4Q2024.

Other commercial assets sold in 3Q2024 include the sale of 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, founded by Singaporean real estate investor Ashish Manchharam, and a capital partner.

Knight Frank’s report also highlights that the en bloc market remained relatively subdued in 3Q2024. There were five collective sale launches last quarter, down from six in the previous quarter, and no successful deals were completed.

Transactions to pick up

According to Knight Frank, the initial round of interest rate cuts by the Fed is set to bring more deals to fruition in the near term. “Deals that have been brewing prior to the interest rate cut announcement are now likely to surface, especially 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 especially optimistic about serviced and co-living residences, anticipating that they will benefit from a sustained increase in tourist and cross-border worker numbers.

In the en bloc market, while collective sales for larger residential sites continue to be challenging, demand is still present for smaller sites, says Chia Mein Mein, head of capital markets for land and collective sale at Knight Frank Singapore.

She adds: “With developers reticent towards the larger collective sale plots, landed houses with sizeable land areas or ‘mini landed en blocs’ of several adjoining houses continue to be sought after by boutique developers, especially in prime areas where the land size has the flexibility to be subdivided and redeveloped into multiple homes.”

In addition, Chia notes that commercial and mixed-use developments may see a higher chance of collective sale success given prevailing market conditions.

Overall, Knight Frank is projecting investment sales momentum to further 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, the brave will increasingly pull the trigger on deals,” adds Ding.

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Investment Sales