Manulife eyes US$2b more of Asian office assets

Singapore

MANULIFE Real Estate is looking to invest over US$2 billion into office assets in Asia, following its maiden acquisition of a prime office building in Singapore's central business district (CBD) in April.

This target is set to double its direct real estate holdings in Asia from some US$2.2 billion currently.

The new pan-Asian strategy for the global real estate arm of Canadian insurer Manulife Financial Corporation comes in tandem with Asia's high growth in insurance sales as well as wealth and asset management, coupled with slowing rental growth in the US market.

Ted Willcocks, global head of asset management at Manulife Real Estate, told BT that the US$526 million acquisition of 8 Cross Street, a 28-storey building in Raffles Place, "marks the start of more acquisitions in Asia".

"We will be standing watch on the Singapore market as well," Mr Willcocks said in an interview this week. He added this is also part of the broader strategy to invest in the region's alternative assets to back the long-term liabilities of Manulife's insurance business.

Manulife Real Estate hopes to deploy its capital in key gateway cities - namely Shanghai, Hong Kong, Tokyo, Singapore, Sydney and Melbourne - with a focus on prime CBD office in the next 24 months.

Prior to this, Manulife Real Estate had traditionally been buying office assets in Asia mainly for its own corporate use, while the United States and Canada formed its main investment markets.

Of Manulife's nearly US$745 billion assets under management (AUM) and administration, its real estate portfolio stood at US$16.7 billion currently, of which US$3.8 billion is managed on behalf of third-party investors.

The real estate portfolio spans over 65 million square feet across 370 properties, including prime offices, industrial properties, retail and residential properties.

In the US where Manulife Real Estate operates under the brand John Hancock, it has 84 properties totalling 26.1 million square feet; in Canada, it has 272 properties totalling 34.6 million square feet; and in Asia, it has 14 properties totalling 1.76 million square feet.

Manulife tends to go for quality assets that offer a discount to replacement cost and levered returns of 8-12 per cent. Underpinning its recent acquisition of 8 Cross Street here is its bullish outlook for the Singapore office market, Mr Willcocks said.

Some 17 per cent of the building's net lettable area of about 355,000 square feet will be up for leasing - and there are already enquiries. "Having studied the Singapore market for a period of time, we are bullish on the office outlook in Singapore and on our asset long-term," he added.

Manulife will be taking up over 100,000 square feet of the space to be vacated by PwC when the latter's lease ends in early 2018. Singapore-listed Manulife US Reit, sponsored by Manulife, will also move into the new Singapore office.

Meanwhile, Manulife remains positive about the US and Canada. Mr Willcocks noted that the sturdy US jobs numbers and benign new builds are still supportive of office rents.

The second-quarter report by property consultancy JLL, however, flagged mixed data points in the US office market. Net office absorption of 8.8 million square feet during the quarter brought year-to-date occupancy growth to 9.9 million square feet but another 11.7 million square feet of completions, coupled with relocations and downsizing by traditional users, pushed vacancy up by 10 basis points to 14.8 per cent, marking the third straight quarter of vacancy increase.

"Moving into the second half of 2017 and into 2018, the wave of new supply to deliver over the next six quarters will markedly alter the office landscape, increasing competition among landlords for tenants and stabilising rents in the process," JLL said.

But that does not speak for all US cities. Mr Willcocks told BT that very few of the US metropolitan cities where Manulife Real Estate has invested have evidence of oversupply. There has also been significant growth in office demand from the technology sector.

The key US cities where its properties are located include Atlanta, Boston, Chicago, New York, Los Angeles, Orlando, San Diego, San Francisco and Washington DC.

"Most of the markets that we operate in have above-average rent growth," Mr Willcocks said.