CRE investors bullish on Singapore and Hong Kong retail revival

Wealthy investors from Europe and Taiwan are showing interest in investing in Singapore.

The commercial real estate (CRE) market is poised for growth in 2024, fueled by an estimated US$761b in global closed-ended funds ready for deployment into real estate. Key targets for regional capital investment in 2024 include Singapore and Hong Kong’s retail sector.

“Having spoken recently to many institutional investors, it is evident that some markets and some asset classes are more sought after than others for these buyers. Japan, Korea, Australia and Singapore are the top four markets,” Jeremy Lake, managing director, investment sales & capital markets at Savills Singapore commented in the press release. 

Although capital inflows from outside the Asia Pacific region fell in 2023 to a 13-year low, intra-regional cross-border investment remains robust, particularly from investors in Japan, Singapore, and mainland China. Japan is expected to lead the recovery, followed by markets where interest rate pressures have been significant, with China expected to lag behind. 

In Singapore, asset classes such as hospitality/co-living, logistics, retail, and office are particularly popular among investors, with niche sectors like data centres and self-storage also attracting interest, although such assets are rarely available for sale in Singapore.

“Investment activity from the non-institutional investors will remain strong in 2024 albeit there has been a slight slowdown since the money laundering arrests mid-last year. Even if a few Chinese investors have left the market, the pool of investors remaining is large with wealthy investors, from Indonesia and Malaysia, and Hong Kong in particular, being long term investors here,” Lake said.

Wealthy investors from Europe and Taiwan are showing interest in investing in Singapore, particularly in shop houses, strata offices, smaller en bloc commercial buildings, and hotels. This trend signals a diversified investor base and ongoing interest in Singapore's real estate market despite recent challenges.

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Furthermore, other key sectors include logistics, multifamily, and senior housing in Australia; offices and logistics in South Korea; and offices in India.

Savills forecasts an increase in investment volumes, particularly in the Asia Pacific region, although growth may be more modest compared to other regions.

With price pressures easing and economic growth showing resilience despite various headwinds, central banks are expected to start easing rates around the middle of the year. 

This will expand the pool of buyers and sellers and support a recovery in CRE markets. The "fear of missing out" (FOMO) factor will likely drive investors to act quickly, seeking a first-mover advantage as evidence of a market recovery emerges.

“As in any cycle, the greatest returns are made by investors who buy closest to the market nadir, so any evidence of a fledgling recovery will bring investors quickly in from the cold, looking for a first-mover advantage,” said Oliver Salmon, Savills World research director, global capital markets in a press release. 

“Much of the optimism we’re seeing is based on expectations of lower rates. As these expectations come to fruition the FOMO dynamic will be reinforced, both via a lower cost of borrowing and via pricing, by boosting the premium of real estate to the prevailing ‘risk-free’ return and so negating any perceived need for prices to adjust further, closing the valuation gap between public and private markets.” Salmon added.

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