Why Singaporean investors are on a global real estate buying spree

There has been a spurt in the number of Singaporean real estate managers and investors increasing their footprint beyond Asia-Pacific.

Last week, Mapletree Investments, the real estate arm of the Singaporean sovereign wealth fund Temasek Holdings, announced the acquisition of a 16.5 million square foot logistics portfolio for US$1.1 billion from Prologis, the San Francisco-based logistics real estate firm. The portfolio is spread across Chicago, Dallas and Seattle in the US, as well as France, Germany and Poland in Europe.

“This acquisition is in line with Mapletree’s strategy to increase our global footprint as a logistics real estate provider, and to venture beyond Asia – a strategy we have been executing since 2014,” said Michael Smith, regional chief executive officer for Europe and USA, at Mapletree.

Other Singaporean investors are making similar moves. In September, for instance, the Singapore-listed real estate conglomerate CapitaLand announced its foray into US multifamily residential with a $835 million portfolio acquisition. The objective, as Gerald Yong, chief executive officer at CapitaLand International, told PERE in an earlier interview, is to diversify CapitaLand’s exposure outside of Singapore and China, given these two countries currently make up around 80 percent of CapitaLand’s business in terms of total asset value and income.

Within the last three years, outbound capital from Singapore real estate investors to Europe and North America markets has reached new levels, as shown by data from Real Capital Analytics in the graph below.

The main driver behind the geographic expansion by these groups, industry experts tell PERE, is to diversify their Asia-centric portfolios into markets at different stages in the real estate cycle.

One Asia-based placement agent told PERE the hunt for attractive yields for one is drawing Singaporean firms to invest in stable income assets in Europe and the US. In his view, the operating and investment return environment in Asia has become a lot more competitive, prompting investors to think of alternative deployment markets. For example, prime yields in Shanghai and Beijing were above 5 percent in August 2018, according to real estate advisory firm JLL. Meanwhile, yields in Singapore were lower than New York and San Francisco, with Hong Kong and Tokyo markets recording lower yields than London, Frankfurt, and Paris.

Consequently, some of these Singaporean firms have also started to reorient their operating manager-focused business model to look for diversification of revenue streams in the more mature markets in the US and Europe.

Many Singaporean groups have also been keen to grow their third-party asset management business outside of Asia. Therefore, they have been willing to use their balance sheets to acquire assets and seed portfolios that they can subsequently recapitalize into club or fund vehicles, according to one advisor familiar with Singaporean investor activity.

London has been one of the most sought-after real estate markets in terms of cross-border investments this year, according to real estate advisor Knight Frank, with Singaporean investors comprising more than 13 percent of the total. In September, real estate developer City Developments Limited, for instance, acquired Aldgate House, an office building near the City of London, for £183 million ($241 million; €206 million), an acquisition done at a 5.25 percent net initial yield, according to a source familiar with the deal.

Singaporean institutional investors, notably the sovereign wealth fund GIC, have long been investing in global real estate. With developers and fund managers now following suit, the city-state’s share in Asia’s overall outbound investment volumes stands to increase even more, if the buying momentum continues.