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Signaling Signs of Life for Singapore’s Office Market, BlackRock makes a $2.5 Billion Sale

Signaling Signs of Life for Singapore’s Office Market, BlackRock makes a $2.5 Billion Sale
The office real estate market in Singapore has been in recent times gripped by worries about oversupply and rising vacancies. Amidst this the announcement of BlackRock Inc about the sale of a 43-storey Singapore office tower for $2.5 billion - one of at least three office building deals in the last two months, brings a breath of fresh air.
Singapore's largest office transaction has been sale to a sovereign wealth fund - to Qatar Investment Authority. According to BlackRock, the world's largest asset manager, it is also the largest single-tower real estate deal in Asia-Pacific.
According to property consultant JLL, which was one of BlackRock's advisers on the transaction, deals in London and Hong Kong have been undone by the selling price of S$2,700 ($1,980) per square foot for Asia Square Tower 1 in the city-state's financial district.
The gloomy views about the market were likely overdone by the deal that could mark a turning point for Singapore real estate, said the U.S. firm.
"Singapore as a home for capital is always very well regarded in the region. So for those folks who have dry powder and are looking to invest, frankly ourselves included, I think a lot of people are looking at Singapore and saying this could be an interesting environment," said John Saunders, head of Asia Pacific for BlackRock Real Estate.
At a time when vacancy rates for Singapore's office property sector are near their highest level in almost a decade and a raft of new supply was about to hit the market, the BlackRock deal should be regarded as an exception, say people who were less optimistic.
"This is not a deal that triggers more deals, because of the supply and demand situation," said Nicholas Mak, executive director at SLP International Property Consultants.
Mak said that office space equivalent to about 5 percent of the current market – about 4 million square feet, were to be added in Singapore this year, he said.  This would be followed by another 1.4 million next year.
Instead of S$3.4 billion it gained, BlackRock had been seeking S$4 billion for the building, media reports have said. While declining to comment further on financial terms, BlackRock said it was happy with the price.
According to consultancy firm Cushman & Wakefield, similar valuations were gained in a 2014 Singapore deal on a per square foot basis.
Prior to the BlackRock deal, there were  two smaller deals. These were an offer by Singapore-listed MYP Ltd to buy the Straits Trading Building for S$560 million last week and Singapore's Capitaland Commercial Trust's plan to buy the remaining 60 percent of an office building it did not own.
BlackRock and Qatar Investment Authority said in a joint statement that the Asia Square Tower 1 has Citigroup Inc as its anchor tenant and over 1.25 million square feet of net lettable area.
BlackRock wants to complete renting out a a second tower in the Asia Square development that it owns before reviewing a sale.

Christopher J. Mitchell

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