THERE seems to be a growing wave of excitement in Singapore’s property investment scene for office buildings and malls; the fervour also appears to have extended to hospitality assets.

With borrowing costs seen to be peaking, some investors are eyeing pockets of opportunities, including potential for exits via strata sales, asset repositioning, or simply taking a longer-term view.

In the suburban retail sector, Cuscaden Peak Investments and United Engineers are expected to put The Seletar Mall on the market, at a guide price of about S$500 million.

Near the Orchard shopping belt, a potential buyer – understood to be an entity linked to TE Capital Partners – is in exclusive due diligence for a potential purchase of VisionCrest Commercial, The Business Times (BT) understands.

Hong Kong-based Gaw Capital Partners is said to be evaluating an offer of about S$240 million that it has received for its Hotel G Singapore in the bustling Bras Basah/Bugis area.

In the financial district, CBRE and Cushman & Wakefield have been quietly marketing AEW’s 27 office floors at 30 Raffles Place, formerly known as Chevron House. BT understands that the guide price is S$725 million, reflecting a per square foot (psf) price of S$2,883 on a net lettable area (NLA) of 251,465 sq ft.

The space covers the sixth to 32nd floors of 30 Raffles Place, which is located next to Raffles Place MRT station. The building sits on a site with a 99-year leasehold tenure that started in December 1989; this leaves a balance term of about 65 years.

AEW’s office space is said to be about 75 per cent leased; WeWork is a major tenant.

Saudi Arabia-based Olayan Group owns the retail podium and the three lowest office floors (levels three to five) of 30 Raffles Place.

"Despite still-high borrowing costs, some buyers are keen as they are eyeing capital-gains play, rather than yield play."

The price that TE Capital is looking at for the freehold VisionCrest Commercial in Penang Road is about S$3,000 psf on strata area; this would amount to roughly S$460 million.

The 11-storey building has a strata area of 154,711 sq ft, comprising 149,652 sq ft of offices and 5,059 sq ft of retail space. The office space is on levels two to 11, with one strata title per floor. The retail space, on the first floor, comprises 11 strata units. With the building already strata titled, TE Capital is likely to look at sprucing up the asset before embarking on strata sales as an exit strategy, say market watchers.

TE Capital Partners is a real estate investment management firm founded by siblings Terence and Emilia Teo, children of Teo Tong Lim, the managing director of Tong Eng Group.

VisionCrest Commercial is owned by the property unit of German asset manager Union Investment. Its exclusive joint advisers, CBRE and JLL, conducted an expression of interest (EOI) exercise for the asset that closed in August.

Cushman & Wakefield and JLL have been appointed as joint marketing agents to conduct an EOI exercise for The Seletar Mall, located next to the Fernvale LRT station site in the Sengkang West area.

The guide price for the property works out to about S$2,640 psf on the NLA of some 189,500 sq ft. Market observers say the net yield is in the low-4 per cent region.

The mall is on a site with a balance leasehold tenure of about 87.5 years. Tenants include FairPrice Finest, Shaw Theatres, Popular Bookstore and Harvey Norman.

The Seletar Mall, which opened in November 2014, is at full occupancy. It has six levels of retail space, including two basement floors. Another three lower basement floors are for car parking spaces.

Negative carry

Market observers noted that borrowing costs for the purchase of commercial properties these days are in the 4 per cent to 5 per cent range, compared with around 1 per cent to 2 per cent in early 2022.

For retail property, net property yields reflected in transacted and asking prices range from sub-3 per cent to low-4 per cent, depending on the location, size and land tenure of the mall. For offices, yields range from 2-plus per cent to 3-plus per cent.

Compared with offices, retail looks more attractive, as the gap between net yield and borrowing costs is narrower – or even non-existent. With retail rents and capital values having eased amid the Covid-19 pandemic, potential investors see value in buying into choice malls to tap a recovering market.

“Prospects are even brighter in the hospitality segment,” said a senior executive of a private equity real estate group.

Gaw Capital’s freehold Hotel G Singapore in Middle Road has 308 rooms, the majority of which are about 12 square metres each. The 16-storey property’s gross floor area (GFA) is about 94,600 sq ft; the property’s development potential has been maximised. However, there is potential to add value to the asset by converting some of the car park space on the fourth floor into additional hotel rooms.

Commenting on the pick-up in interest for Singapore malls and office buildings, a seasoned investment sales agent said: “We are seeing the presence of institutional investors (including private equity firms), but as they have hurdle rates to fulfil, they cannot bid as aggressively as the family offices.”

Despite still-high borrowing costs, some buyers are keen as they are eyeing capital-gains play, rather than yield play. An example is VisionCrest Commercial, where there is a very clear option for the buyer to do strata sales since the building is already strata titled. In other cases, assets may be bought at entry yields below borrowing costs, as the intending buyer sees potential for refurbishing the asset, providing rental upside.

“There are investors prepared to take a longer-term view on the Singapore property market. Some are also able to buy with low or even no gearing; for them, high borrowing costs would not come into the equation,” said the private equity firm executive.