Landscape of Family Office Investments
In Singapore, there has been a surge in family offices, with 182 new family offices set up in the early months of 2023, building upon the momentum of the last two years. According to The Straits Times, 1,100 single family offices (SFOs) qualified for tax incentives last year, resulting in 690 new offices.
Interestingly, the Monetary Authority of Singapore has highlighted the increased financial activities of these family offices, with these entities handling a significant S$90 billion of assets under management in 2021. If this growth rate persists, we could see the assets under management in 2022 reaching an anticipated S$141 billion.
A Citi Private Bank survey offers more insight into the investment strategies of these offices. They tend to allocate up to 40% of their resources to specialised types of investments. This could mean that family offices in Singapore are preparing to invest an estimated S$56.5 billion in unique investment avenues.
On a broader scale, family offices in Asia are increasingly leaning towards private market investments. They allocate between 15% to 30% of their portfolios to such ventures, real estate being a prominent category. A UBS report has flagged an upcoming major shift in asset allocation among these family offices. They have shown significant interest in sectors such as technology and health care.
Throughout the next five years, as many as 27% of Asia-Pacific family offices want to enhance their direct private equity investments. There’s a mixed trend in allocations. While hedge fund allocations are up from 4% to 7%, direct private equity allocations have seen a drop.
This represents a departure from the previous longer-term investment strategy for marginal short-term gains through a growing interest in private equity funds, private debt and infrastructure. Consequently, we might witness a decline in real estate allocations in the near future.
As the world zigs in one direction, the overlooked zags often present untapped opportunities.
Everyone still needs somewhere to call home. Aside from residential property, real estate investments for family offices represent an asset class that offers diverse opportunities. As our living, working, and shopping habits evolve, the real estate market is experiencing significant shifts. These changes beg the questions: What might these be? What should family office asset managers know? And, where might the most lucrative future investment opportunities lie?
At Singapore Luxury Homes, we’re highlighting some real estate trends we foresee that can potentially help family office investments.
1. Heightened Importance of Personal Space
Recent years have shifted the focus to how homes, offices, and urban spaces are utilised. The pandemic has undeniably influenced work and lifestyle choices, leading to a ‘new normal’ with repercussions for the real estate market. One takeaway from the pandemic era is the heightened importance of personal living spaces.
Despite the ability to work remotely, the need for global companies to maintain headquarters in prime CBD locations remains. However, the need for satellite offices worldwide has diminished. Quality upgrades are necessary to make offices conducive to collaboration and meetings.
The ongoing debate surrounding hybrid work models continues to shape urban landscapes. Repurposing outdated office buildings for other uses, such as hotels or student housing, is an emerging trend. Converting these spaces to residential units is also an option, though new challenges exist.
2. Property Investment vs. Ownership
A common query involves distinguishing property investment from property ownership, especially considering it as an asset class rather than merely bricks and mortar. Property investments generally aim for an absolute total return. Acquiring a family or multifamily house means seeking a stable yield from rental income. Furthermore, as land appreciates over time, capital growth is anticipated.
There are differences between buying a personal residence and investing in real estate. When discussing real estate, the significance of location cannot be overstated. While personal preferences play a role in purchasing a personal residence, considerations such as diversification, liquidity, and risk-return parameters are paramount when looking at real estate as an asset class.
3. Direct and Indirect Property Investments
Distinctions are made between direct property investments and indirect ones. The expected profits for private real estate investments have decreased everywhere because of increased exit capitalisation and the rising cost of capital.
However, the differences in specific sectors might help counteract some of these issues. Shares in real estate investment trusts (REITs) or diversified fund portfolios are options for those investing more diminutive amounts. After a rough 2022, global REITs have shown signs of stability in early 2023.
The prospects for REITs look better now, mainly due to the starting valuations due to last year’s inflation and interest rate hikes; they’re still below their late 2021 values.
Despite price fluctuations, REITs remain popular among investors due to their income payouts from rents, which, in many places (except in the US), are higher than deposit rates, attracting those seeking steady income.
Institutional investors or high-net-worth individuals with more extensive portfolios might opt to build their portfolios by directly purchasing residential or commercial properties on the market. Another investment avenue is club deals, where private investors collectively invest in a development or value-added property. This approach can offer higher returns, albeit with increased risks.
Read related article: Grade A Office Buildings in Singapore: Long-Term Investment Asset
4. Rising New Constructions, Sustainable Footprints
Presently, the housing market is of great concern to many. The ongoing dynamics, such as demographic shifts or affordability trends, influence the market profoundly. With rising interest rates, the costs associated with purchasing and financing a home have surged. Coupled with increased inflation affecting construction costs, the supply of new builds has dwindled, causing rents to rise.
The environmental ramifications of extensive new constructions are undeniable. Innovations in the construction sector are emerging to address these challenges. Examples include the use of drones, robots and 3D printing.
Additionally, sustainable initiatives are gaining traction, with investors actively reducing their carbon footprint and exploring circular economy concepts in property renovations.
Modern consumers are more environmentally conscious than ever. Retail, hospitality, or residential properties incorporating sustainable practices and eco-friendly designs are increasingly attractive. Investing in properties with green certifications or funding renovations to make existing properties more sustainable can cater to market demand and offer long-term cost savings.
5. The ‘Last Mile’ in Retail
With e-commerce’s growing prominence, the way consumers shop has undeniably shifted. While online shopping offers convenience, brick-and-mortar stores remain essential, especially those in prime locations. These physical retail spaces serve as tangible brand touchpoints where consumers can experience products firsthand and engage.
However, as e-commerce platforms dispatch a wider variety of products at an ever-faster rate, the backbone of this system gains importance. The significance of warehouses for logistics cannot be understated.
An even more pressing opportunity lies in warehouses and logistics centres. As e-commerce giants aim to expedite deliveries, investing in strategically located warehouses, especially those catering to ‘last-mile’ deliveries in urban zones, can offer attractive returns.
Read related article: Real Estate Trends: Deep Dive into Property Market in Singapore for 2023
6. Travel & Hospitality on the Uptick
The hospitality sector presents potential investment opportunities with a noticeable uptick in restaurant and bar patronage. Remote work allows extended hotel stays, and airports are experiencing increased traffic.
Similarly, the hospitality sector is undergoing its transformation. As dining out becomes a preferred leisure activity for many, there’s been a noticeable increase in the patronage of restaurants and bars. This trend suggests that while consumers appreciate the convenience of home deliveries and virtual connections, they still crave authentic, in-person experiences and social interactions. This presents opportunities for investments in well-located dining establishments or those offering unique dining experiences.
The effects of the remote work culture, a byproduct of the pandemic, are also echoing in the hospitality sector. With the flexibility to work from anywhere, many professionals are opting for extended hotel stays, turning what would have been a short business trip or vacation into a workcation. This trend has led hotels to reimagine their spaces to cater to remote workers, with dedicated work zones and high-speed internet connections becoming standard amenities.
Airports, too, are witnessing an evolution. While business travel may have reduced, the rise in leisure travel and the appeal of extended stays means that airports are bustling. With the re-emergence of travel, there’s a renewed focus on enhancing the traveller’s experience, from the check-in process to the waiting lounges.
7. Benefits of an Onshoring Strategy
Family offices often bring their real estate investments closer to home for various reasons. Economic conditions in domestic markets promise better returns, or regulatory changes in places like Singapore could make foreign investments less appealing. Furthermore, geopolitical or economic uncertainties associated with overseas assets can be concerning. Sometimes, the shift is to align the real estate portfolio with the family’s other local businesses and interests. The idea is to optimise the portfolio’s security, performance, and alignment with the family’s broader goals.
Singapore, renowned for its strategic position in Asia, witnessed a significant surge in investments in 2022, predominantly in the manufacturing sector, especially electronics. These investments are set to fortify Singapore’s industrial landscape. Even with challenges, manufacturing remains a vital sector. With China’s borders now open, some Chinese firms might see Singapore as an ideal location for production facilities.
Globally, the direction of globalisation is still debated, but the real estate market is undeniably shifting. Industries like life sciences and technology are demanding more space. The rising trend of onshoring and concepts like ‘Lab as a Service’ are becoming popular. This model offers startups ready-to-use laboratories, allowing them to invest more in research and development rather than infrastructure. Such trends provide unique investment opportunities in the real estate sector.
For investors eyeing Singapore, the focus can be on real estate tailored for tech hubs, R&D spaces, and innovation centres, given the nation’s strong emphasis on technology and life sciences. As onshoring becomes more common, properties suitable for logistics and manufacturing serving local and regional markets will also be valuable. Keeping abreast of Singapore’s government policies is crucial, as their initiatives can greatly influence real estate demand in specific sectors.
Certified Family Office Advisor and Real Estate
For investors eyeing the real estate sector, core principles such as diversification, liquidity, and risk-return parameters remain fundamental for success. Family offices tend to have a longer investment horizon than traditional institutional investors, which allows them to be more patient capital providers. This is particularly beneficial in private markets where investments take longer to mature but can offer higher returns, as in some of the trends highlighted in this article.
As a certified family office advisor and the founder of Singapore Luxury Homes, Sunita Gill offers guidance, structuring, and management of intricate real estate portfolios for family offices in Singapore and its international satellites. Demonstrating an unparalleled dedication to elevating the representation of real estate assets, our team has successfully facilitated transactions exceeding $2 billion in Singapore and overseas.