Singapore beats all other APAC cities with USD4.1b commercial property investments in Q4

This is the highest quarterly figure in the last five years.

Singapore has taken the lead in Asia-Pacific in commercial real estate investments in Q4 2023, according to Knight Frank’s latest report. The commercial investment volume in Singapore grew 462% quarterly and 110% over the same year, to reach USD 4.1 billion. This is the highest Q4 figure recorded in the last five years, surpassing the average quarterly increase of USD 2.5 billion by 64%, and placing Singapore at the forefront of the region.

These gains were driven by several substantial office transactions, including Shenton House (USD 402 million), VisionCrest (USD 322 million), and Wilkie Edge (USD 260 billion).

Christine Li, head of research, Asia-Pacific, Knight Frank elaborates, “The deals occurred despite the weaker investor sentiments due to fluctuations in interest rate movements and diverging expectations between buyer and seller on asset valuations. The successful execution of these large-scale transactions highlights the underlying strength of Singapore's commercial real estate market. It also suggests that as interest rates stabilise and repricing slows, pent-up demand for office assets may drive recovery for the sector by the end of 2024.”

Neil Brookes, global head of capital markets, Knight Frank, highlights the encouraging developments for the commercial real estate market in the coming months. “The Q4 figures and ongoing transactions in early 2024 suggest improving investor sentiment. Despite challenges such as tight yield spreads and high borrowing costs, the Federal Reserve maintained steady interest rates in the January 2024 meeting while advising against a rate cut in March. Our outlook anticipates rate cuts to occur after mid-year 2024, which is likely to coincide with a more active investment market.”

South Korea's commercial real estate investment volume bounces back, led by strategic investors and tight office market dynamics

South Korea’s commercial real estate investment volume rebounded significantly in Q4 2023, reaching approximately USD 6.5 billion, a 52.6% increase from Q4 2022. This recovery was primarily driven by strategic investors taking advantage of the tight supply-demand dynamics in the office sector, which remained the preferred asset type.

Ms Li explains, “Seoul's office market has experienced significant growth in recent years, with office rents increasing more than 17% since 2020 and vacancy rates compressing to less than 1%. This strong performance has positioned it as the best-performing office market in Asia. Traditionally, South Korean institutional investors have been among the most well-capitalised players in the regional commercial real estate market. However, their activity has slowed recently due to liquidity constraints and the prolonged high-interest rate environment. Additionally, overseas acquisitions have faced challenges such as valuation declines resulting from quick repricing, muted demand for occupier spaces, and refinancing issues.”

Overall, Seoul's office market continues to attract strong investor interest despite the challenges posed by limited supply and high demand. Strategic investors play a crucial role in reshaping the market as they acquire properties for self-use and address occupier issues. On the other hand, the retail sector also saw upticks in investment volume, improving sevenfold from Q4 2022.

Asia-Pacific multi-family sector clinched a stellar performance

The Asia-Pacific multi-family sector recorded a stellar performance in 2023. In the last ten years, the Asia-Pacific multi-family sector attracted a total investment of USD 75.5 billion, with 2023 accounting for 14% of that figure. This trend highlights its attractiveness to investors seeking defensive strategies and reliable income streams in a changing market environment.

Emily Relf, head of living sectors, Asia-Pacific, Knight Frank, adds, “As the sector gains more attention in the region, investors have uncovered more opportunities beyond Japan, which has traditionally been the most well-established multi-family market in the region. In 2023, investment volume diversified, with more transactions occurring in markets such as Australia, Chinese Mainland and Hong Kong SAR.

Australia’s multi-family sector has seen full-year transaction volumes increasing seven folds from US$ 1.14 billion in 2022 to US$ 1.96 billion in 2023. Strong population growth, a large tenant base, and a severe housing supply shortage, coupled with a deep and liquid investment market, position Australia's multifamily sector for strategic growth and institutional investment.”

With strong population growth contributing to a large market of tenants and a severe lack of housing supply, combined with a deep and liquid investment market, the Australian multi-family market is strategically positioned to establish itself as the next primary institutional asset class.

The Chinese Mainland multi-family market also holds significant potential, with 2023 transaction volume nearly doubling to US$ 1.96 billion, almost twice from the previous year. Factors such as rural-urban migration, demographic shifts, and the slowdown in the property market are driving a stronger inclination towards renting, and presents opportunities for the nascent multi-family sector.