Overseas investors charged back into Singapore’s commercial property market in the third quarter of 2024 after spending most of 2023 on the sidelines.

High-profile global firms and publicly listed buyers have accounted for about 75 per cent of activity in the commercial real estate space so far this year, said investment research firm MSCI.

Most of this buying in 2024 has been in the industrial and residential sectors, including hotels, while interest in offices has fallen.

Real estate deals in the commercial investment space amounted to $8.94 billion in the three months to Sept 30, up nearly 40 per cent from the second quarter of 2024 and 27.5 per cent from the third quarter in 2023, noted property consultant Colliers.

Colliers estimates that investment sales will total between $22 billion and $24 billion in 2024, a 5 per cent to 15 per cent growth compared with 2023.

Singapore and other regional markets have been hit by higher interest rates over the past couple of years, but the prospect of lower borrowing costs has whetted institutional appetite for commercial real estate.

The turning point for deal activity came in July 2024 when the US Federal Reserve gave clear signs that it would soon start reducing rates.

Preliminary data indicates the buying interest has continued into the final quarter of this year, Mr Benjamin Chow, head of real estate research for Asia at MSCI, told The Straits Times.

“The recovery in institutional appetite in 2024 is notable, signalling that markets are gradually returning to normalcy after this period of subdued institutional presence,” Mr Chow said.

The sector’s recovery in 2025 hinges on whether prices remain high and the willingness of sellers to lower their price expectations, he added.

Singapore’s commercial real estate market has traditionally been dominated by big institutional buyers – organisations that pool large sums to invest – due to the stable operating environment and resilient capital values here, Mr Chow said.

These buyers have traditionally accounted for about 75 per cent of deals in the commercial property sector here, but this dropped during the Covid-19 pandemic to about 66 per cent.

The surge in buying in 2024 began to lift that share, with August proving to be a key month.

Australia’s Lendlease and US private equity giant Warburg Pincus bought a portfolio of properties in Singapore worth $1.6 billion from a real estate investment trust (Reit) owned by Blackstone and Mr Lim Chap Huat, executive chairman of construction-related firm Soilbuild.

The portfolio comprised business parks and specialist facilities that count blue-chip companies in the life sciences sector as tenants.

A regional sovereign wealth fund, reportedly Brunei Investment Agency, bought a 49 per cent stake in Elementum, a life sciences complex in Singapore, from Ho Bee Land for $272 million, also in August.

Listed Reits have also become more active buyers. CapitaLand Integrated Commercial Trust’s $1.85 billion acquisition of a 50 per cent stake in Ion Orchard in Orchard Road, announced in September, has been the biggest single-asset deal here so far in 2024.

Buyers have targeted industrial and residential property, including hotels, while the office sector, once a main focal point for institutional investors, has seen less activity due to the lack of repricing, Mr Chow said.

While overseas investors seek exposure to the Singapore market for diversification, particularly in sectors with greater potential for rental growth, domestic investors have largely been focused on growing overseas.

Institutional investors have also returned to key regional markets, boosting their share of deals to the highest in two years in the third quarter of 2024.

The three traditional sectors of office, industrial and retail all recovered during the quarter, MSCI reported.

Hotel sale volumes in the region declined by more than 20 per cent in the third quarter from the same period in 2023.

The biggest deal in the quarter was the sale by Singapore sovereign wealth fund GIC of the Hilton Fukuoka Sea Hawk in Japan for an unconfirmed US$450 million (S$607 million).

After seven consecutive quarters of declining purchases, cross-border investments in the Asia-Pacific region bounced back in the third quarter of 2024.

Investors from outside the Asia-Pacific have deployed US$12.2 billion in the region so far this year, 12 per cent more than in the same period a year earlier, with data centres the top sector for cross-border capital.

Mr Chris Pilgrim, managing director of global capital markets for the Asia-Pacific at Colliers, said investors are expected to turn to key markets, such as Japan and Australia, particularly in the office, industrial, logistics and multifamily space, where properties have separate units designed for more than one tenant.

“Lower rates will trigger an uptick in transactions as investors move to deploy the dry powder amassed over the past two to three years.

“The narrowing buyer-vendor pricing gap is expected to be the other key driver of volumes in 2025, especially in the office sector,” he said.

Other markets in the region could see activity in alternative asset classes such as data centres, cold storage and student accommodation, Mr Pilgrim added.