In 1H2023, the investment market will continue to be in a price-discovery mode

Investment sales dropped 10.8% q-o-q to $5 billion in 4Q2022, as rising borrowing costs and uncertainty about macroeconomics dampened business, according to research conducted by Colliers. The consultancy also says that the total amount of investments in 2022 was $29.1 billion, which is an 2.8% increase y-o-y, supported by a robust early part in the calendar year.

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Despite the slowdown in 4Q2022, this quarter saw several large transactions occur. This includes the sale of Jurong Point and Swing By @Thomson Plaza by Mercatus Co-operative for $2.161 billion as well as the sale of 50% share in Lazada One by ARA Asset Management for $361.49 million in addition to a number of private residential land sales.

The divestment undertaken by Mercatus helped boost commercial sales in the 4Q2022 as the segment recorded growth of 87.7% q-o-q surge to $2.8 billion. In the entire year, commercial sales increased 78.7% y-o-y to $11.4 billion.

Sales of residential properties fell 51.7% q-o-q to $1.3 billion, aided by a decrease in collective sales as well as the luxury sales, according to Colliers. For 2022 in all the decline in residential sales was 18.1% y-o-y to $10.5 billion.

However, industrial deals fell 39.7% q-o-q to around $400 million. The consulting firm attributes to a number of significant transactions that remain awaiting JTC approval. In the entire year, industrial sales declined 59.7% y-o-y.

Colliers anticipates that the investment market to be in price discovery mode for the first quarter of the year, while investors adapt to the new norm of more rates of interest and slow growth. The company is predicting that the value of investment sales to be about $25 billion by 2023, which represents a drop of 15% per year. It also expects the deals will be “bite-sized” because bigger deals typically require an extended timeframe and more leverage.

However, the firm believes an increase in activity as likely to be seen in the second half of 2023, as the direction of interest rates and inflation become more clear. “Despite the narrowing spreads of yields for those who want to invest in primary asset classes, Singapore properties still offer the potential to grow capital over time and provide decent returns on all investments,” remarks Tang Wei Leng as the chief executive officer and director of capital markets and investment services in Singapore for Colliers.

Tang says private wealth investors could be more prominent on the market in the coming year, because of tighter financing as well as other macroeconomic headwinds force institution investors to be forced to step down or take a position. She expects private wealth capital will focus on the residential market for luxury as well as strata-titled commercial spaces and shophouses.

Additionally, Catherine He, Colliers director and head for research in Singapore says that prime office and prime logistics capital value will be supported by positive growth in rental and abundant liquidity. Additionally premium retail value is anticipated to increase over the next few months. “As so the net yields are likely to stay relatively steady until the pace of transactions increases during the latter half of 2023.” she adds.