Increase in demand for industrial space
dential developments, namely the 1,052-unit Affinity at Serangoon (the former Serangoon Ville) and the 1,472-unit Riverfront Residences (former Rio Casa) at Hougang Avenue 7. Since the two projects were launched in the second half of 2018, Affinity at Serangoon is over 70% sold and Riverfront Residences is close to 90% sold, based on caveats lodged to date. “It may be slower but fundamentally, our residential sector has been very stable,” notes SLB’s Ong.
‘Living sectors’ in the UK, fund management
Besides 32RE, in June, SLB also subscribed to a 20% equity stake for £90,000 ($155,275) in Pinnacle Investment Management Ltd (PIML), a fund management subsidiary of UK-based Pinnacle Investments (Holdings) and Pinnacle Group. The fund manager is planning to build a series of funds focused on the private rented sector (PRS) across the UK.
Last September, SLB had already made a maiden investment of £2 million into Pinnacle Residential Fund, a UK residential fund managed by PIML. The fund is targeted at the “living sectors”, which are properties that provide different types of accommodation and tenures for various needs and stages of life. Hence, Pinnacle Residential Fund’s strategy is to acquire a portfolio of private rented flats and houses across the UK, targeting areas where there is a mismatch in supply and demand but demonstrate good economic growth prospects.
“Despite uncertainties from the ongoing Covid- 19 pandemic and outcome of Brexit, we remain optimistic about the housing market and investment demand in the UK, especially in the long term,” comments SLB’s Ong. “The UK PRS, backed by strong fundamentals underpinned by demographic growth and favourable supply-demand dynamics, has been a steady source of income even in tough times.”
SLB ventured into the fund management business last September, first with its investment into Pinnacle Residential Fund in the UK, followed by the inception of 32RE in October.
He is anticipating that within the next three to five years, the fund management business will contribute between 20% and 30% of SLB’s bottomline. “We hope that the fund management business will help in terms of providing greater stability of income,” says Ong. “But deep down in our hearts, we are still developers.”
He sees opportunities for growth in the “living sectors” in the UK, and the co-living segment in Singapore. “Covid-19 changed the way people live and work,” says Ong. “Most developers will have to think of including workspace as one of the facilities within a condominium project.”
Office, mixed-use developments to stay relevant
Consequently, mixed-use developments will stay relevant, reckons Ong. So will the office sector, despite the WFH phenomenon across the globe. And it is a sector that 32RE is interested in exploring. “There has been quite a lot of debate about whether Covid-19 will spell the end of the office sector,” says 32RE’s Choy. “But we are of the belief that the office sector in Singapore will endure, and so we are also looking at opportunities in that space.”
No doubt, there are office-occupiers giving up some of their office spaces when their leases are up for renewal. “It’s mainly driven by business conditions, and it’s across all sectors from oil and gas, banking and finance, and FMCG [fast-moving consumer goods],” says Michael Tay, CBRE head of capital markets for Singapore. However, some of these decisions to reduce space requirements are also driven by space efficiency, he points out.
For instance, in the midst of Covid- 19, an automobile company that had previously occupied 40,000 sq ft elsewhere moved to Guoco Tower in Tanjong Pagar, where it has taken up 33,000 sq ft. Meanwhile, an insurance company that had 40,000 sq ft of office space before, recently leased 27,000 sq ft at Guoco Tower. “Besides reduction of occupancy cost, these decisions were also driven by a desire to achieve higher efficiency in the use of office space,” says Tay. “Guoco Tower at Tanjong Pagar is a new, premium-grade office tower, and it’s surrounded by amenities and linked directly to Tanjong Pagar MRT Station.”
Tay is expecting to see office rents correct by at least 3% q-o-q from 1Q2020 to 2Q2020. CBRE’s projection is for office rents to correct by 13% for the full year.
Besides office, SLB’s Ong is optimistic about industrial space, because he saw a 15% to 20% increase in enquiries for units at InSpace, a freehold, 84- unit, strata industrial building that previewed last year. The project is a redevelopment of the former Pei Fu Industrial Building and is a 51:49 joint venture between SLB and Oxley Holdings.
“As these industrial units can’t be used as an office, some companies are considering using them as back offices and storage space for their office documents,” says Ong. “This allows them to achieve cost savings by reducing their office space use in the CBD.”
With the rise in e- commerce over the past few months, more retailers are also looking at increasing their online presence, and hence there has been a corresponding increase in demand for warehouse space to store their goods.
“The interesting thing is, I actually sold more units of warehouse space during Covid-19 than during the months leading up to Chinese New Year,” Ong says.
He adds that all the 28 strata units at SLB’s MacTaggart Foodlink were taken up recently. This is because during the circuit breaker, F&B operators could only do allow food delivery or takeout. As such, some of the big restaurant chains are now considering taking up industrial space to house a central kitchen and consolidating the number of their outlets. “Unfortunately, I ran out of space at MacTaggart Foodlink,” laments Ong. “Because of that, I’m actually quite bullish about the industrial sector.”
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