Singapore might be facing an economic slowdown that will likely dampen occupier demand for prime office space, but that's not putting off Allianz Real Estate from investing in the city-state's buildings.
Together with Hong Kong-based Gaw Capital, Allianz RE has agreed to purchase DUO Tower and DUO Galleria, a “premium grade-A” office asset and ancillary retail space located near Singapore’s central business district (CBD), for about S$1.6 billion ($1.17 billion).
Allianz RE, which acts on behalf of several units within the German insurance group, will own a 60% interest in the joint venture. Gaw, representing a sovereign wealth fund separate account, will own the rest. Investment firm Gaw declined to disclose the identity of the fund in question.
The acquisition of the DUO properties follows a number of other recent deals in Singapore by Allianz RE, including investments in the two CBD office assets Ocean Financial Centre and 77 Robinson Road, the latter reportedly also in partnership with Gaw.
And in its second-quarter update, real estate services firm Cushman & Wakefield said that would likely weigh on rental growth. “Due to increased market uncertainty, the 2019 full-year Grade-A CBD rental growth is now projected to be lower than expected,” it said.
“Markets globally are [at a] late-cycle [stage], some more than others. Our underwriting reflects the cyclical nature of real estate,” Desai told AsianInvestor.
“Furthermore we are an institutional buy-and-hold investor,” he added, noting how regional diversification is helping to reduce portfolio volatility.
Allianz RE is also not alone in continuing to bet on Singapore commercial property. According to another commercial real estate adviser, JLL, property investments in Singapore nearly doubled in first half of 2019 after a relatively subdued 2018.
Driven in part by large-scale transactions, the office sector continued to account for the largest share of investment with nearly $4.6 billion in acquisitions so far this year. They are likely to reach a new decade high in 2019, JLL said on Wednesday (July 31). This compares with the total $3 billion transacted in 2018 and $4.7 billion in 2017 respectively.
Chris Fossick, head of Southeast Asia at JLL, believes that office rental growth will pick up again soon due to "favourable demand-supply dynamics and a benign interest rate outlook".
“Singapore’s prime office rents are expected to continue growing over the next few years, backed by robust demand for the technology, professional services and financial services sectors,” Fossick said.
A survey released in May by three regional real estate investor associations – Anrev (Asia-Pacific), Inrev (Europe) and NCREIF (US) – also shows that the general interest for Asia-Pacific real estate is on the rise among global investors.
TARGET TO CHASE
As of the end of last year, about 4.7% of Allianz RE’s €63.5 billion ($71.2 billion) global portfolio was invested in Asia Pacific.
Desai said a new estimate for June-end was not yet available even though the numbers are updated biannually. However, Allianz has previously stated its intention to have a 5% to 10% exposure to the region.
When AsianInvestor asked about that in April, Desai responded that Allianz RE’s regional portfolio growth was in line with its broader diversification plan.
Desai told AsianInvestor that the DUO transaction was partly undertaken with borrowed funds but said he could not disclose the individual asset leverage percentage and strategy.
“DUO offers secure income yield with potential for positive rental reversion,” Desai said. “This investment is well aligned with our preference towards sectors and assets that offer secure income yield and/or a growing income stream as well as increased cross-regional diversification.”
DUO is being sold around eight months after being put on the market by development company M+S Pte, a joint venture between Malaysia’s Khazanah Nasional and Singapore’s Temasek.
The asset was completed in 2017 and comprises of 557,972 square feet of office space with floor plates ranging between 26,000 and 31,000 square feet as well as 59,873 square feet of retail space. The asset has a current occupancy rate of 97%.