Fed Rate Cut Bolster Investment Sales Especially Industrial And Living Sector Assets Knight Frank
In a much-awaited move, the US Federal Reserve has announced a cut in interest rates, which has breathed new life into the real estate capital market. According to a report by Knight Frank Singapore, the investment activity in the market is already showing early signs of a resurgence.
Based on data compiled by the consultancy, a total of $8.3 billion worth of real estate investment deals were completed in the third quarter of 2024, representing an impressive 24.8% increase from the previous quarter. Knight Frank attributes this surge to a rise in investor activity in anticipation of the interest rate cut by the Fed. This is the first time the Fed has reduced interest rates in over four years, with rates now standing at a targeted range of 4.75% to 5%.
The majority of investment deals in the third quarter were private sales, totaling $6 billion, while public sales accounted for the remaining $2.3 billion. The industrial segment saw the biggest spike in activity, with industrial investment sales jumping 427% from the previous quarter to reach a value of $2.5 billion.
This surge can be largely attributed to the sale of a portfolio of seven industrial properties to a joint venture by private equity firm Warburg Pincus and Australian-listed Lendlease Group. The partners bought 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 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 of which took place in August.
Residential investment deals made up $3.2 billion of the total sales in the third quarter, representing a 24.7% decrease from the previous quarter. Government land sales (GLS) accounted for more than two-thirds of these deals, with notable purchases including Zion Road (Parcel B) that was awarded to Allgreen Properties for $730.09 million and an executive condominium site on Jalan Loyang Besar that sold for $557 million to a consortium of developers. Another GLS site on Margaret Drive was also sold in August to a consortium consisting of GuocoLand, Hong Leong Holdings’ Intrepid Investments and Hong Realty, for $497 million.
Good class bungalow (GCB) deals also contributed to the residential investment sales, with one GCB at Tanglin Hill being sold for $93.9 million in July and two GCBs on Belmont Road selling for $73.7 million and $57.7 million respectively, also in July according to Knight Frank.
Commercial assets made up $2.7 billion of the total investment sales in the third quarter, representing a 37.2% increase from the previous quarter. 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 was a major contributor to this growth, subject to approval by CICT unitholders at an extraordinary general meeting to be held in the fourth quarter. Other commercial assets sold in the third quarter include Stamford Court, which was sold in August by Singapore Land Group to Spark61, a joint venture between Elevate Capital and a capital partner, for $132 million.
Knight Frank’s report also notes a relatively subdued en bloc market in the third quarter, with only five collective sale launches and no successful deals completed. However, small residential sites continue to be in demand, particularly landed houses and “mini landed en blocs” in prime areas that can be subdivided and redeveloped into multiple homes.
Daniel Ding, Knight Frank Singapore’s head of capital markets for land and building and international real estate, believes that the initial round of interest rate cuts by the Fed will pave the way for increased transactions in the upcoming months. He is particularly optimistic about serviced and co-living residences, which he predicts will benefit from a sustained increase in tourist and cross-border worker numbers. 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.
The Woodlands, known as the entrance to the northern region of Singapore, is about to undergo a major transformation thanks to the URA’s Master Plan. This ambitious plan has a vision to turn the Woodlands Regional Centre into a thriving hub, home to two unique districts: Woodlands Central and Woodlands North Coast. The primary objective of this development is to revitalize the area, drawing in businesses, creating job opportunities, and improving the quality of life for residents. As part of this exciting development, the much-anticipated Norwood Grand will also be joining the Woodlands landscape.
Overall, the consultancy is projecting a further improvement in investment sales momentum in the coming months, with total sales for 2024 expected to fall between $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.