Singapore slinging billions into Australian property with no sign of stopping

Singapore’s top real estate investors are setting a fierce pace in Australian commercial property deals.

Singaporean real estate firm CapitaLand is leading the pack for the half interest in the $900m North Sydney landmark 101 Miller Street.

Singapore’s top real estate investors are setting a fierce pace in Australian commercial property deals with their biggest moves a pointer to the direction their portfolios will take once the pandemic lifts.

Major groups, led by sovereign wealth fund GIC, which is setting up in Sydney with an office, understood to be steered by property executive Richard Massey, set to open next year, have an agenda to buy more Australian property and are casting an exceptionally wide net.

Logistics parks, hospitals and suburban offices are in their sights with their deal-making in these areas helping to reset values. The companies are partly moving to diversify their Australian holdings, which were predominantly office and retail facilities, into new areas, where they are now entrenched in a range of areas ranging from logistics to health care.

Their plays are getting increasingly noticed both in direct property deals and among corporate deal-makers as billions of dollars worth of capital is being deployed.

The largest deals just this year include Asian logistics firm ESR, with the backing of GIC, buying the $3.8bn Milestone portfolio and the sovereign fund also backed a play by Canada’s Northwest for the $2.8bn Australian Unity healthcare property trust in a $2.8bn move.

But equally as important is a fleet of Singaporean real estate houses that have been on the heels of most deals, with names including Mapletree and Ascendas making large plays, and successfully picking up some major assets.

Now Singaporean real estate firm CapitaLand is chasing Australian assets again and is leading the pack for the half interest in the $900m North Sydney landmark 101 Miller Street and Greenwood Plaza that American asset manager Nuveen put up on the block last year.

That deal, via Knight Frank and Colliers International, is still under wraps with the parties declining to comment.

Singaporean groups are also ploughing funds into property deals by funding acquisitions by local firms.

Transaction volumes are still on an upward trajectory. There was a small dip in volumes in 2020 but a very strong rebound in the first half of 2021. This first alone has surpassed all other yearly volumes from the past decade, mostly driven by large portfolio acquisitions.

Knight Frank global head of capital markets Neil Brookes said that office had been the most sought-after asset class over the last decade, accounting for nearly 60 per cent of transaction activity. But this year industrial has far surpassed office, partly driven by the Milestone deal.

“The shift to industrial shouldn’t be overstated – the Milestone deal is so large it is skewing data to logistics, but plenty of office deals continue to take place,” Mr Brookes said.

He added that the lack of office stock on the market, as vendors hold back assets until borders open, may account for restrained office volumes.

Meanwhile, Singapore-REITs have surged into metropolitan offices over the last 12 months. “As a sub-sector this is nothing new for the likes of Ascendas who invest in business parks globally.”

Mr Brookes said that Singaporean investors were certainly prepared to venture into new sectors.

“Instead of this being a reflection of them moving up this risk curve, it is a strategic shift to wherever the opportunity is for core long-dated income,” he added.

101 Miller Street, North Sydney.

Knight Frank director, Asia Pacific capital markets Emily Relf’s reckoning Australia accounted for 31 per cent of all Singaporean outbound activity. This was up from the 16 per cent five-year average and comes as investors stick close to home during the pandemic.

“Many Singaporean investors are very familiar with Australia, have teams on the ground, or have connections with local partners, and therefore are comfortable transacting without inspecting,” she said.

They are using more joint ventures with about 59 per cent of acquisitions from 2020 to now via joint ventures – a big jump from 2016-2019 where such deals were at the 10 per cent to 20 per cent.

Portfolio acquisitions have become more prevalent over the past four years as Singapore’s government-linked companies seek scale making them aggressive buyers for these platforms.

Mr Brookes said drivers of Singaporean investment into Australia also included the healthy yield spread given the low cost of capital and the opportunity to build immediate scale with larger deals.

“Singaporean capital is likely to remain at the number one spot as deep pockets from Singaporean institutions continue to seek large scale acquisitions in global gateways,” Mr Brookes said.

“Instead of seeing Singaporean investors moving up the risk curve, they will shift strategy in line with structural and demographic demand changes, continuing to seek core long dated income,” Mr Brookes said.

CBRE head of international capital, Pacific and Southeast Asia Stuart McCann said Australia would continue to be well sought.

“What we have generally seen across Asia Pacific over the past 12 months, is that when physical occupancy levels returned to 50 per cent or greater, so has significant leasing performance,” Mr McCann said.

“In Australia, four out of our six major office markets, all returned to positive net absorption in the first half of 2021. This is supporting significant capital inflows, which we estimate to now be at or even higher, than pre-Covid levels for core office.”

He says that Australia offers a very large investable real estate sector where Singaporean investors can put their capital and Singaporean investors are moving fast.

A key drawcard is the ability to invest in multiple markets.

“You have your major gateway markets of Sydney and Melbourne, then you’ve got your markets like Brisbane, Perth, Canberra and Adelaide, and even including Auckland.

“As a result, investors can build major portfolios, which offer significant diversification, because each of those markets have different drivers.”

Mr McCann also pointed to the convergence of capitalisation rates and total returns in Australia, so they are more aligned with other global gateway markets around the world.

Singaporean investors are driving down yields on big assets and new benchmarks are likely to be set.

“We are seeing Australia’s yields and unlevered internal rates of return continue to converge with the major global gateway markets,” Mr McCann said.

The big portfolio offers by Investa and Dexus are drawing out Singaporean interest and they are also chasing big individual assets like Midtown Centre.

Cushman & Wakefield head of capital markets, Australia and New Zealand Josh Cullen said that over the first half of 2021, investors from Singapore were again the most active with seven acquisitions totalling more than $900m.

These included Mercatus’ $375m partnership with Dexus for a one-third stake in Sydney’s 1 Bligh Street.

“Singapore investors are drawn to Australian commercial real estate by the relatively strong and stable economy, attractive yields compared to many other global markets as well as our open and transparent market.

“As vaccination target levels are expected to be achieved in late 2021, allowing the easing of restrictions on travel and work, Australia’s economic recovery should continue apace, supporting further investment from Singapore in 2022,” Mr Cullen said.

Cushman & Wakefield head of research, Australia John Sears points out that Singapore has consistently been ranked among the top three sources of foreign investment capital into Australian commercial real estate and on seven occasions, including last year, it ranked first.

When the latest lockdowns come off a new wave of Singaporean investment is expected to set the pace next year.