Fed Rate Cut Bolster Investment Sales Especially Industrial And Living Sector Assets Knight Frank
The highly anticipated interest rate cut by the US Federal Reserve has sparked new investment interest in the real estate capital market, as reported by Knight Frank Singapore. According to data compiled by the consultancy, a total of $8.3 billion in real estate investment deals were transacted in 3Q2024, a 24.8% increase from the previous quarter. This growth is attributed to the rise in investor activity following the rate cut on Sept 18, which marked the Fed’s first cut in over four years.
The majority of investment deals in 3Q2024 were private sales, totaling $6 billion, with public sales making up the remaining $2.3 billion. The industrial sector saw the most significant surge in activity, with industrial investment sales increasing by 427% q-o-q to hit $2.5 billion. This spike was largely due to the $1.6 billion sale of a portfolio of seven industrial properties to a joint venture by Warburg Pincus and Lendlease Group in August.
Other notable industrial transactions in 3Q2024 include ESR-Logos REIT’s purchase of a 51% stake in an industrial site at 20 Tuas South Avenue 14 for $444.6 million, as well as Ho Bee Land’s sale of a 49% stake in the biomedical sciences development Elementum for $272 million to a sovereign wealth fund.
Residential investment deals made up $3.2 billion of total sales in 3Q2024, a 24.7% decrease from the previous quarter. The majority of these deals were government land sales (GLS), including the sale of Zion Road (Parcel B) to Allgreen Properties for $730.09 million and the sale of an executive condominium site on Jalan Loyang Besar for $557 million to a consortium of developers.
Several good class bungalow (GCB) deals also contributed to residential investment sales. In July, a GCB at Tanglin Hill was sold for $93.9 million, and two GCBs on Belmont Road were sold for $73.7 million and $57.7 million, respectively.
Commercial assets made up $2.7 billion of total investment sales in 3Q2024, a 37.2% increase from the previous quarter. This was largely driven by the sale of Ion Orchard by CapitaLand Investment to CapitaLand Integrated Commercial Trust for 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 Stamford Court for $132 million, which was divested 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 quiet in 3Q2024, with five collective sale launches and no successful deals completed. Chia Mein Mein, head of capital markets for land and collective sale at Knight Frank Singapore, comments that larger residential sites are still challenging to sell, but there is still demand for smaller sites, especially in prime areas where land can be divided and redeveloped into multiple homes.
A considerable number of HDB flats, approximately 1,500 in the Clementi and Queenstown regions, are anticipated to complete their 5-year Minimum Occupation Period (MOP). This event is projected to generate a substantial increase in demand for HDB upgraders in the vicinity, particularly with the launch of new projects. With the introduction of Elta Condo, the demand for upgraded HDB flats in the area is expected to further amplify.
The Fed’s initial round of interest rate cuts is expected to drive increased transactions, particularly in the industrial and living sectors. Daniel Ding, head of capital markets for land and building and international real estate at Knight Frank Singapore, is particularly optimistic about serviced and co-living residences, anticipating a sustained increase in tourist and cross-border worker numbers. Additionally, commercial and mixed-use developments are also expected to have a higher success rate in the current market conditions.
Overall, Knight Frank expects investment sales momentum to continue improving in the coming months, with total sales for 2024 falling within the estimated range of $23 billion to $25 billion. Ding predicts that as the bid-ask gap narrows and the prospect of positive carry returns, more investors will pull the trigger on deals.