BlackRock, Hines, ESR-Logos REIT and Realterm Bullish on Singapore Industrial

Region-leading yields are among the factors keeping Singapore’s industrial assets among the top priorities for real estate investors, according to decision-makers from BlackRock, Hines, ESR-Logos REIT and Realterm who appeared at a Mingtiandi forum earlier this month.

“Singapore industrial is a very good fit for our value-add strategy of building a portfolio of high quality income-producing properties for core investors that offer a good yield spread to borrowing costs,” BlackRock Alternatives director and head of investments for Southeast Asia real estate Andrew Lee told Mingtiandi’s first ever forum in the city. “Even after adjusting for shorter land leases, Singapore still offers one of the highest yields across developed APAC markets, and for us, that’s a big investment positive.”

Lee said the city’s business parks and logistics assets generate around 5.5 percent and 6.5 percent in yields, respectively, helping the Lion City to register some of the lowest degrees of cap rate compression in Asia Pacific.

Speaking as part of the same panel at the Mingtiandi Singapore Focus Forum 2022, which was sponsored by Yardi, Adrian Chui chief executive for the manager of ESR-Logos REIT said he expects the sector to continue outperforming in the coming years after the global supply chains and consumer behaviour were transformed by the coronavirus pandemic.

Maximising Income

In addition to high rates of return, BlackRock’s Lee said the city’s industrial property segment also enjoys a strong tenancy profile with most tenants coming from sectors like e-commerce, logistics, biomedical, medical technology, technology and even banking.

“Singapore industrial offers what investors are looking for – high yield, good spread to borrowing costs and exposure to defensive companies,” Lee told the audience of over 200 industry executives. He added that, “In this inflationary and uncertain environment, we are optimistic that inflation-fighting properties that are leased to defensive tenants will command a premium.”

Kian Fong Lim, managing director and country head for Singapore and Southeast Asia at Hines, shared the same view, pointing to how Singapore industrial assets serve as a “good balancer” to prop up the yield profile of a pan-Asia portfolio.

Lim led Hines’ debut in the Southeast Asian nation at the start of the year, when the US builder teamed up with German fund manager DWS Group to buy the Bukit Batok Connection industrial building for S$93.8 million ($69 million).

“In the context of Singapore, you have to grapple with certain restrictions, you have to get your head around a relatively short land tenure compared to other parts of the world but what awaits you at the end of that is a generally excellent yield profile, the macro is very positive across many sectors,” he said.

For Bastian van Halder, managing director for Asia Pacific at logistics investment manager Realterm, earning returns from industrial investments in Singapore requires understanding the city-state’s economy and the many small to medium-sized businesses operating from industrial properties.

“Singapore industrial, it’s not that straightforward,” van Halder said. “You’re looking at a small independent business and you figure out how you can maximise the dollar per space from an income perspective.”

Staying Relevant

ESR-Logos REIT’s Chui, whose trust holds 34 assets across Singapore, the local industrial property scene has benefited from Singapore becoming more tightly integrated into global supply chains, and will continue to do so in coming years as countries rush to diversify industrial sourcing.

“Today, going forward, logistics and industrial will continue to play a sustainable role because I believe the way we produce, consume and deliver goods have fundamentally changed,” he said.

“When the world is in a mess, logistics is counter-cyclical, they tend to perform and I think we are still in a mess,” he added.

Moderated by Joyce Lo, director of private capital advisory at boutique investment bank Lazard, the industrial panel was part of the 8-session forum hosted by Mingtiandi last week at the ParkRoyal Collection Hotel in Marina Bay.