Real estate

Commercial property report – November 2021

with Navin Bafna

Boulevard: When we spoke back in May 2020, you were surprisingly optimistic about the office market, even as work from home became the new norm. How have things panned out since?

Navin: Quite well, actually! There’s been so much talk about the death of the office, but in reality, we’re seeing the opposite – strong demand from buyers, rising prices, and a positive outlook ahead. Some $2.6bn in office assets has already transacted in 2021, compared to $2.3bn for the whole of 2020.

For a while things got a bit quiet, then suddenly there was too much demand. You see, there is no new supply, no inventory available, and increasing interest coming in from family offices and other buyers. I think this is likely to continue.

Boulevard: And is that confidence supported by rental yields?

Navin: It’s not, in fact, the rental market has been soft. I don’t believe that will be the case longer term, but for now it’s true that rental yields are down. But for sales, it’s the opposite – there’s no supply, and prices have hit an all-time high. Suntec City, Prudential Tower and Samsung Hub have all seen strong demand and profitable transactions. You can rent in any one of these buildings, but you can’t buy. So capital values have decoupled from short-term rentals.

Boulevard: What’s driving the demand, if not rental returns?

Navin: The Singapore commercial market is uniquely positioned, in that 95% of Grade A assets are non-strata – so you can’t buy into them. And of those few office projects you can buy into, they’re closely held. Prices can only come down if someone is prepared to sell it low, and with so little inventory available there simply isn’t any need to discount. And this is especially true as Singapore starts to re-open. I think we’re all anticipating a rush of family offices, financial services and tech firms moving to Singapore once borders re-open, and many of them will prefer to buy than rent.

Boulevard: What do you have available on the market right now?

Navin: There are three projects I’m working on that stand out. First, there’s 20 Cecil Street, where I’ve been managing the launch. You asked about the commercial market performance: 20 Cecil Street has just sold its top units on the 23rd floor at $3,350 psf. These are three units combined, in fact, of which one will be for the buyer’s own use and the other two are for rental. So clearly there is some positive sentiment in the market. 20 Cecil Street is the only portfolio of Grade A strata units for sale, so it’s a rare chance to choose from among a selection of units – while they last!

The second project is a portfolio of units in Prudential Tower that will come onto the market shortly. It’s a prized Grade A building, exceptional location, and the strata sizes are bigger, from 5,000 sqft or half a floor plate. Almost all are tenanted, and the whole portfolio is worth about $100m. Prudential Tower has had no transactions for the last two years; the supply has been extremely restricted. So this represents a rare chance to buy in. It’s very hard to come by.

Third, I have a handful of units in Suntec City and Samsung Hub – Grade A strata title.

And that’s it – you can see how little inventory there is. We’re expecting another office tower to launch later in 2022 with strata units from 3,800 to 6,000 sqft. And there’s a possibility – unconfirmed at this stage – that some strata units may be released at the Fuji Xerox building, which CDL is redeveloping.

Boulevard: Even if the availability of strata assets is low, can this price growth be sustained longer term?

Navin: Let me tell you about a transaction I managed at Samsung Hub. It’s the only Grade A building with 999 years lease which you can buy (strata). In 2015, I sold an individual strata unit there at around $3,100 psf. At that time, it was the most expensive unit ever sold at Samsung Hub. I remember a property agent friend asked me if I thought the buyer will make money. And I remember saying, I don’t know if he will make money tomorrow or in three months. But if the buyer can wait for three to four years, there is no way he can lose money in Samsung Hub.

Now, five or six years later, you can’t buy individual units at Samsung Hub. You can only buy floor plates, and a 13,000 sqft floor plate is transacting at $4,050 psf. Meanwhile, we have a small unit of 1,700 sqft, so the price would be, what, $4,300? $4,500?

So will he make money? Yes, he will. But every time I go back asking if he’d like to sell, he says no and asks if he can buy more!

Boulevard: The question is, will the buyer at $4,300 psf make money in four to five years’ time?

Navin: Will Singapore have another building that’s Grade A, 999 years leasehold and available for sale? Until that day comes, you have your answer.

Navin Bafna

Over the last 10 years, Navin has focused on strata offices, investment sales, office strata sales, hotels, shophouses and working with family offices. Navin has managed transactions at all of the top commercial properties in Singapore as one of the market’s most prolific and experienced producers, and has led the launches of 20 Cecil Street and Centrium Square, among other projects

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