JLL acts as advisor to Alibaba’s 50% purchase of AXA Tower, Singapore. JLL says purchase of AXA Tower, Singapore shows that investor appetite for CBD assets remains strong.
JLL on May 6 announced that it acted as the real estate advisor to Alibaba Singapore, part of Alibaba Group Holding Limited, in its 50% share purchase agreement (SPA) of AXA Tower from Perennial Real Estate Holdings Limited (“Perennial”) through Perennial Shenton Investors Pte. Ltd, a Perennial-led entity comprising a consortium of investors.
Under the terms of the SPA, Alibaba Singapore will acquire a 50% stake in Perennial Shenton Holding Pte. Ltd, which indirectly owns AXA Tower, and the transfer of 50% of the shareholders’ loan outstanding, based on an agreed property price of S$1.68 billion.
“Investors have remained optimistic throughout this uncertain environment and stayed active in their pursuit of core assets in Singapore. This transaction will provide a confidence boost to the Singapore market and reaffirm investor appetite for CBD assets,” said Ting Lim, Executive Director, Head of Capital Markets, Singapore, JLL.
AXA Tower, located at 8 Shenton Way, is a grade-A office development in Singapore’s central business district with 50 stories and an attached podium of retail space. AXA Tower currently has an existing gross floor area (GFA) of approximately 1.05 million square feet. It has received approval from the Urban Renewal Authority further to increase its GFA to 1.55 million sq ft to integrate hotel and residential usage under the CBD Incentive Scheme.
Alibaba Singapore will complete its purchase around June 2020, subject to all transaction conditions being fulfilled. Upon completion, the company will also enter into a new joint venture with Perennial Newco, a consortium of investors including Perennial, with an equity interest in AXA Tower, to redevelop the property. Alibaba Singapore currently serves as an anchor tenant of AXA Tower.
“Amid ongoing market uncertainty related to the COVID-19 pandemic, technology and e-commerce companies have become essential providers of goods and services across the region. As a result of increased demand for their services and strong capital positions, they have remained active in their expansion and investment plans, with global gateway cities like Singapore proving an attractive destination for deployment,” said Regina Lim, Head of Asia Pacific Capital Markets Research, JLL.
One recent report said that Singapore‘s residential sector performed relatively well in the first quarter, but an unpredictable economic outlook could limit home sales and new projects. A slowdown is also expected in the city-state’s commercial sector as remote working measures gather pace to contain the virus; however, opportunities are expected to emerge in the logistics, premium office building, hotel segments and CBD residential.
An earlier report, Colliers said that Singapore remains an attractive top investment destination. Colliers Research projected that Singapore investment sales volumes will grow on average by 5% per annum in longer-term, over 2019-2024 despite a 24% forecasted drop year-on-year (YOY) in 2020 as Singapore’s strong policy response to the coronavirus (COVID-19) pandemic is reinforcing its safe haven status.
Despite Covid-19 challenges Singapore remains top investment destination for the long term
Jerome Wright, Senior Director of Capital Markets at Colliers International, said, “The global disruption to economic activity caused by COVID-19 will mean challenging times in the short-term. However, the longer-term fundamentals of the Singapore real estate market remain strong and intact, and we can expect the market to recover as the successful control measures are lifted and industries regain full momentum.”
In the short-term, based on advance estimates from the Ministry of Trade and Industry (MTI), Singapore’s Q1 GDP contracted by -2.2% YOY, and Singapore is experiencing the worst decline since the global financial crisis.
In addition, according to Oxford Economics, as of 24 March 2020, the Singapore economy is forecast to head into its first recession in two decades, putting 2020 growth in the range of -4% to -1%.
The purchase of AXA Tower, Singapore, comes at a time when only a handful of Singapore Grade A office developments completing in 2020. The purchase could have been driven in part by the tapering of office supply in the CBD, response for the development has been positive.
Mr Paul Ho, chief mortgage consultant at iCompareLoan said, “at the end of the day, purchase of commercial and office units in the CBD district will present an attractive proposition to investors anticipating companies and working professionals readying to position themselves for a business upturn in a post-COVID environment.”
He added, “But the outlook for the property sector in the near-to-mid term is still very unclear and investors and buyers should exercise extreme prudence. They must do their own research and analyse if they will be getting the best bang for their buck.”
With COVID-19 expected to persist through 2020 or even beyond, property across all Singapore real estate markets have weakened in response to the economic fallout triggered by the coronavirus outbreak said leading real estate services company Edmund Tie.
Notwithstanding a slew of support measures introduced by the Government through its Unity Budget, Resilience and Solidarity Packages, transactions have fallen across the investment sales, office, industrial, retail and residential sectors, alluding to a highly cautious stance, it added in its latest analysis.
Q1 2020 recorded S$3.3bn worth of investment sales, down a substantial 34% from the S$5.0bn of Q4 2019, before the “circuit breaker” came into force. While the private sector was the primary driver of investment sales in Q4 2019 – accounting for 95.3 per cent of total investment sales in the last quarter of 2019 – in Q1 this year, it only accounted for 52.6 per cent.
Transaction quantums have also dropped: from 14 transactions exceeding S$50m in Q4 2019, Q1 2020 witnessed only four transactions of such magnitude, and among those, two were arising from related party transactions. Cross Street Exchange (formerly known as China Square Central) and Alexandra Technopark, which respectively transacted at S$648m and S$606m, were transactions between Frasers Commercial Trust and Frasers Logistics & Industrial Trust.
Bucking the trend, however, the GLS programme awarded five residential sites in Q1 2020, up from only one award in Q4 2019, and collectively accounted for some S$1.4bn.