Fed Rate Cut Bolster Investment Sales Especially Industrial And Living Sector Assets Knight Frank

The recent interest rate cut by the US Federal Reserve has given a much-needed boost to the real estate market. According to Knight Frank Singapore, there has been a resurgence in investment activity, with $8.3 billion worth of real estate transactions in the third quarter of 2024. This marks a 24.8% increase from the previous quarter, thanks to a rise in investor activity in anticipation of the rate cut. In September, the Fed reduced interest rates by half a percentage point to a targeted range of 4.75% to 5%, its first cut in over four years.It’s noteworthy that the majority of investment deals in the third quarter were private sales, amounting to $6 billion, while the remaining $2.3 billion were public sales. The industrial sector saw the most significant increase in activity, with industrial investment sales skyrocketing 427% quarter-on-quarter to reach $2.5 billion in value. This surge was driven by the sale of a portfolio of seven Singapore industrial properties to a joint venture by global private equity firm Warburg Pincus and Australian-listed Lendlease Group for $1.6 billion in August.Other notable industrial transactions in the third quarter include ESR-Logos REIT’s purchase of a 51% stake in an industrial site at 20 Tuas South Avenue 14 for $444.6 million and Ho Bee Land’s sale of a 49% stake in Elementum, a biomedical sciences development, for $272 million to a sovereign wealth fund. Both deals took place in August.Residential investment deals accounted for $3.2 billion of total sales in the third quarter, a decrease of 24.7% quarter-on-quarter. However, over two-thirds of this amount, or $2.3 billion, was from government land sales (GLS). These include the sale of Zion Road (Parcel B) to Allgreen Properties for $730.09 million ($1,304 psf per plot ratio) and an executive condominium site on Jalan Loyang Besar to a consortium of developers for $557 million ($729 psf per plot ratio). Another GLS site on Margaret Drive was also sold for $497 million to a consortium comprising GuocoLand, Hong Leong Holdings’ Intrepid Investments, and Hong Realty.Commercial assets made up $2.7 billion of total investment sales in the third quarter of 2024, a 37.2% increase quarter-on-quarter. This was mainly due to the sale of Ion Orchard by CapitaLand Investment (CLI) to CapitaLand Integrated Commercial Trust in September for $1.85 billion, subject to CICT unitholders’ approval at an extraordinary general meeting to be held in the fourth quarter. Other commercial assets sold in the third quarter include Stamford Court for $132 million in August.Although the collective sales market remained relatively quiet in the third quarter, there were five collective sale launches, down from six in the previous quarter. However, none of these deals were completed. Chia Mein Mein, head of capital markets for land and collective sale at Knight Frank Singapore, notes that larger residential sites remain a challenge for collective sales. Nevertheless, smaller sites still attract demand, especially for landed houses in prime areas that can be subdivided and redeveloped into multiple homes.Knight Frank Singapore’s head of capital markets for land and building and international real estate, Daniel Ding, expects the initial rate cut by the Fed to pave the way for more transactions, especially in the industrial sector and living sector assets. Ding is particularly optimistic about serviced and co-living residences, which he believes will benefit from an increase in tourist and cross-border worker numbers.while the collective sales market remains challenging, Knight Frank sees that commercial and mixed-use developments may have higher chances of success given current market conditions. Overall, the consultancy expects investment sales momentum to improve further in the coming months, with total sales for 2024 projected to fall within the estimated range of $23 billion to $25 billion. Ding concludes that as the bid-ask gap narrows and the possibility of positive carry returns, more investors will become bolder in making deals.

As more people move towards mixed-use developments, the Master Plan is actively supporting this growth by introducing new commercial spaces. These spaces will not only attract businesses, but also create more job opportunities. As part of this effort, popular shopping malls like Tampines Mall and Century Square will be upgraded, while new and diverse retail choices will be added. Take for instance Parktown Residence, a mixed-use development that seamlessly blends residential and commercial areas to foster a vibrant and dynamic community. With its innovative approach, Parktown Residence serves as a prime model of the future of mixed-use developments.