Singapore's Empty Office Party

Plenty's gone wrong, but investors are coming back. Look to interbank rates for the answer.

Everything that could go wrong for Singapore's commercial property market already has. 

The city-state's export-driven economy is slowing, banks are shrinking, industrial production is sputtering, home prices are falling, and consumers are the glummest in seven years. To make matters worse, tourism and hospitality businesses are being threatened by the Zika virus, which has infected more than 300 people on a crowded island of 5.5 million inhabitants.

And yet, commercial property landlords in Singapore are the happiest in a year.

Hope Returns

Having erased all gains for the past five years, Singapore's office REITs are climbing again

Source: Bloomberg

*Market-cap weighted index of 17 Singapore REITs focused on owning office and industrial properties.

Despite a glut of vacant and under-construction office space and a 10 percent slide in central-district rents over the past year, the city is attracting investors. Purchase prices in the main financial area are down only 3 percent from last year, which makes them 50 percent more expensive than just after the 2008 financial crisis.

Put down the continued optimism to cheap money.

The island's three-month interbank rate has crashed to 0.87 percent from 1.25 percent at the start of 2016. With the Federal Reserve unable to raise interest rates since December, and Brexit leading to a renewed easing of British monetary policy, fears that Singapore real estate investment trusts may find it harder to refinance their debt -- and be forced to cut dividends -- have proved groundless.

Even with their rental income under pressure, the city's 18 office and industrial landlords tracked by Bloomberg have garnered 16 percent returns for their investors in 2016, including almost 6 percent from dividend payouts. In a yield-hungry world, that's not something to be scoffed at.  

Thirst for Yield (Quenched)

Excess dividend yield expected on Singapore office REITS over 2-year Singapore government bonds

Source: Bloomberg

Then there's Singapore's longer-term outlook, which is getting a boost from Brexit. Amid panicky estimates that a fifth of London's financial industry will up and leave in a year or two, Singapore is rolling out the red carpet, especially for fintech startups.


Even before the Brexit vote, foreign real estate investment into Singapore saw a steep jump in the first half of 2016. To be sure, much of the $3.3 billion came from a single deal, with Qatar Investment Authority paying BlackRock $2.5 billion for an office tower. It was less than BlackRock hoped to get, but if the punt turns out to be a smart buy for Qatar's wealth fund, others could follow.


For the patient investor, the pessimism about Singapore's economic prospects could be an opportunity. Considering where prices have been, the present looks like a bargain.  

Trading Spaces

Office prices per square foot in Singapore are relatively low while prices in London are still relatively high

Source: RCA Capital Analytics via Bloomberg

While economic activity may disappoint for a while longer, most sources of Singapore's competitiveness are intact. Consulting firm PwC rated it the best global city in a recent study, thanks in part to its excellent transportation infrastructure, technological readiness and ease of doing business.

We're No. 2!

Singapore is one of three Asia-Pacific cities in the Top Ten


Shows first ten cities out of 30 ranked in Cities of Opportunity report

There's a fly in the ointment, though. As in other rich countries, Singapore's once-pragmatic attitude toward immigration has hardened, leading to higher wages. But the authorities don't want entrepreneurs to be squeezed out by costs. The cheaper the rent, the less the grumbling about the island's shallow and expensive talent pool.

The upshot for landlords is that their returns won't come from rising rentals, but from picking up offices on the cheap in an oversupplied market -- with inexpensively sourced capital. If global interest rates suddenly rise, or London fights back, all bets will be off.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the authors of this story:
    Andy Mukherjee in Singapore at
    Rani Molla in New York at

    To contact the editor responsible for this story:
    Matthew Brooker at

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