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June 10, 2016

The US$2.45 billion acquisition of a prime Singapore office building by Qatar Investment Authority (QIA) signaled increased Middle East interest to diversify away from oil into higher yielding real estate assets in Asia Pacific, according to JLL.

“The transaction is a reflection of the underlying depth of the global capital market and investors’ continual interest in core markets like Singapore,” says Stuart Crow, Head of Asia Pacific Capital Markets at JLL.

“It reflects confidence in the longer term potential of the Singapore commercial market – especially given its strategic positioning within the larger Asia Pacific region,” adds Dr. Chua Yang Liang, Head of Research, Southeast Asia.

QIA will acquire the 43-storey Asia Square Tower 1 from Blackrock Inc. and the acquisition is the largest single-tower real estate transaction to date in APAC, according to data compiled by JLL, which also advised on the deal.

Changes at QIA and Middle Eastern Funds

The transaction followed reported changes at Qatar’s sovereign wealth fund. To help improve oversight, about $100 billion of the QIA’s stakes in companies such as Qatar Airways and Qatar National Bank SAQ will be placed into a new internal division named Qatar Investments, according to media reports. The changes indicate that oil-dependent Middle Eastern countries are shifting their investment focus.

QIA and other Middle Eastern sovereign wealth funds (SWFs) are facing a persistently volatile and uncertain investment environment amid swings in equity markets and lower oil prices. They have continued to look into other assets, including real estate, for higher returns and diversification benefits. SWFs are also renowned for taking a long-term view on asset acquisition.

Following its Singapore acquisition, QIA reportedly signed a Memorandum of Understanding with National Investment and Infrastructure Fund to facilitate investment in India’s infrastructure. Earlier this month, the Saudi Arabian royal government’s investment arm announced that it is investing US$3.5 billion in Uber, one of the largest investments in a private technology company ever.

“SWFs in the Middle East are becoming influential players as they are among the world’s largest and are funded by their parent country’s oil earnings,” says Fadi Moussalli, Head of JLL’s International Capital Group in the Middle East and North Africa

For SWFs and other official institutions on the lookout for new assets, Asia remains the most attractive region for investment, according to a State Street global survey of more than 100 official institutions, defined as central banks, SWFs and government pensions. In that survey, 89 percent of APAC institutions and 63 percent of institutions from other regions plan to increase their investments in Asia.

Positive fundamentals in Asia

Greg Hyland Head of Singapore Capital Markets said “The stable political outlook and strong economic fundamentals make Singapore an attractive destination for global investors. The move by startups and companies in innovative technologies, lifestyle business, advanced robotics and automotive industries to establish regional offices in Singapore will also boost premium and Grade A office demand, and assist in absorbing new supply.”

Asia Square Tower 1, located in Singapore’s Marina Bay financial district, comprises more than 1.2 million square feet of Grade A office space and nearly 40,000 square feet of retail space. Current tenants include Citigroup, Julius Baer and KKR & Co. The transaction followed the sale of Shunfu Ville in the city-state for US$475 million in May and the acquisition of the Straits Trading Building by an Indonesian tycoon for US$417 million.

“This recent deal could motivate other investors to relook at the Singapore market more seriously,” he says.

The value of Asia Square Tower 1 was almost twice the amount paid for Dah Sing Financial Centre, which was sold for US$1.29 billion in Hong Kong in February this year.

Looking out at the remainder of 2016, Crow says: “Overall, investor interest in APAC’s office market, including those in Australia, Japan and tier-one China, is expected to remain strong for the rest of the year. And the expectation is that capital values will also continue to outpace rents in many markets through the rest of this year.”

Stuart Crow
Head of Capital Markets, JLL Asia Pacific

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