BlackRock eyes more opportunities in S'pore after Asia Square T1 sale

Singapore

FRESH from selling Asia Square Tower 1 for S$3.4 billion, or around S$2,700 per square foot (psf) on net lettable area (NLA), to Qatar Investment Authority, BlackRock says it is looking at Singapore for other potential property investment opportunities.

"We are looking predominantly at office and retail at the moment. Residential probably has a little bit further to fall because of the taxes (such as the additional buyer's stamp duty) and the supply implications," said John Saunders, head of Asia Pacific for BlackRock Real Estate, in an interview with The Business Times on Monday.

BlackRock, the world's largest money manager, is keen on prime office space in the island's central business district (CBD).

"In terms of retail, we would consider suburban as well," Mr Saunders added. In the near term, BlackRock is more likely to buy existing office buildings or retail malls here rather than to embark on a greenfield development.

BlackRock still owns the office and retail space in Asia Square Tower 2, but there is no immediate timeline for its divestment. Tower 2's occupancy rate is in the mid-70s per cent and BlackRock is close to a couple of big leases which when inked would take the figure close to 90 per cent. The goal would then be to finish leasing the remaining space in Tower 2 during the course of this year, after which the group could possibly look at a sale.

Tower 1, which is being sold, is already 90 per cent leased. However, Google, which reportedly occupies 130,000 sq ft in the building, will exit later this year, to move to Mapletree Business City II.

"There has been quite a lot of interest in the Google space in large part because it is one of the very few new completed buildings where someone can get contiguous multiple floors," Mr Saunders highlighted.

Besides Singapore, BlackRock is focused on four other major markets in the region - Hong Kong, Australia, China and Japan.

Mr Saunders said: "We are quite active in four of the five. The only one we are waiting because we think it has a bit more downside is the Hong Kong market and that is a function of that you've got a slowing China, with the potential for rising rates in the US feeding through a peg currency."

Property consultants noted that the Singapore office market is reeling from a glut arising from several big completions taking place within the next 12 months - Guoco Tower, Marina One, DUO Tower and 5 Shenton Way.

Cushman & Wakefield Singapore research director Christine Li said the office leasing market faces challenges in the short term due to weak business conditions, with leasing demand impacted by headwinds in the banking, oil and commodities sectors. "The supply overhang of 3.6 million sq ft will likely lead to the Grade A CBD vacancy rate exceeding double digits by the end of the year. Accordingly, Grade A CBD rents are projected to moderate by a further 10-12 per cent in 2016 (after easing 10 per cent in 2015) but stabilise in subsequent years given the significantly reduced supply pipeline in 2017 and 2018."

Mr Saunders feels the negative press on the Singapore office market is overdone. ". . . if you've got a prime, CBD high-quality asset, we are still seeing good demand from both new and existing tenants. We are not really seeing a huge amount of pressure on rents".

News of BlackRock's sale of Asia Square Tower 1 to Qatar's sovereign wealth fund (SWF) confirms reports in The Business Times over the past two weeks.

Asia Square Tower 1, an award-winning landmark office building, offers 43 storeys of space totalling over 1.25 million square feet of NLA. This property has received the US Green Building Council's Leadership in Energy & Environment Core & Shell Platinum certification. Current tenants in Tower 1 include Citibank, Julius Baer and Marsh & McLennan.

This marks the largest single-tower property transaction in the Asia-Pacific to date, and the second largest single-tower property deal globally, according to data compiled by JLL.

Qatar Investment Authority was set up in 2005 to strengthen the country's economy by diversifying into new asset classes. The group also owns the landmark Raffles Hotel here through its unit Katara Hospitality.

JLL and CBRE are joint sole advisers for this transaction for BlackRock.

Greg Hyland, head of capital markets, Singapore, at JLL said: "Singapore continues to be an attractive destination for international investors, thanks to its stable political outlook, superior infrastructure and strong economic fundamentals. Following this flagship transaction, we expect there will be increasing investor interest in Singapore prime office stock in the coming months."

"Looking beyond Singapore, we are seeing a growing demand from global investors looking for major single-asset opportunities in the region such as Asia Square," he added.

Market watchers highlighted that the announcement of a deal for Asia Square Tower 1 makes it the third big-ticket Singapore office transaction in the past few weeks.

The first was CapitaLand Commercial Trust's proposed acquisition of the remaining 60 per cent of CapitaGreen. Then came Indonesian tycoon Tahir's proposed purchase, through listed MYP Ltd, of the 28-storey Straits Trading Building on Battery Road at S$560 million; brokered by Michelle Lek of Quillion Global, the deal translates to a record price of slightly above S$3,520 psf on NLA for the 999-year-leasehold tower.

CBRE Singapore's executive director of investment properties Jeremy Lake said: "Many investors had concluded that they should leave the Singapore office market alone and only come back next year.

"However, with three significant office investment transactions - especially the Asia Square deal, simply due to its sheer size - institutional investors such as SWFs and insurance companies from around the region and the world may reassess the market. CEOs will ask their organisations: 'Is this a one-off transaction or are we missing something?' The pace of leasing activity in new office developments is likely to pick up and embolden people that things are not as bad as they thought."