Singapore Quarter 1, 2023

SINGAPORE, April 2023

Market commentary

Challenging start to 2023 but sustained real estate momentum

Q1 2023 AT A GLANCE

KEY HIGHLIGHTS

Residential
Elevated economic uncertainty and borrowing costs will temper buying demand. Nonetheless, with a line-up of new project launches in 2023, homebuyers would be provided with more options that could support sales.

Investment
Q1 2023 saw healthy investment activity for lower-quantum sites. The tourism recovery has put hospitality sites in the spotlight. Investment sales for 2023 is expected to moderate amid cautious investor sentiments.

Retail
Leasing demand in Q1 2023 was dampened by economic uncertainties despite tourism recovery. Rental growth in 2023 is expected to moderate but remain supported by the tourism recovery and China’s easing of measures.

Office
Rental growth moderated in Q1 2023 despite increase in occupancy. Firms will remain cautious in expansions and more will opt to rightsize their office space to suit current needs

ECONOMY

KEY HIGHLIGHTS

GDP Growth

Economic growth slowed further to just 0.1% y-o-y in Q1 2023 from 2.1% in Q4 2022, dragged down by the manufacturing sector whose output contracted by 6.0% from a year ago. While the construction sector recorded sustained growth, the services industries grew at a slower pace of 1.8% y-o-y in Q1 2023 from 4.0% in Q4 2022. The MTI projects growth of 0.5% to 2.5% for 2023. Firms are likely to remain cautious towards investments and expansions.

Business Expectations

Business expectations, especially in the manufacturing sector, have weakened. Manufacturing firms are more pessimistic than optimistic about future prospects for three consecutive quarters.

Unemployment Rate

The labour market has exhibited resilience; the unemployment rate dipped to 1.9% in January and February 2023, a 7-year low. However, job layoffs could increase in the coming quarters.

Inflation

Headline inflation appears to be past the peak although core inflation remains stubbornly high. The high costs of living would weigh on spending power and also elevate costs of doing business.

INVESTMENT
Smaller sites and hospitality are the new flavours

KEY HIGHLIGHTS

Investment Sales Sectorial Contribution (%)

Investment Sales (S$ billion)

Top 5 Private Investment Sales (S$ million)

Market Commentary

• Although investment sales decreased in Q1 2023 from Q4 2022, it can be attributed to more lower quantum deals being transacted as opposed to a fall in investment activity. Investment sales of S$4bn was clocked for Q1 2023 and was largely supported by the sale of 50% stake in NEX and the collective sales market that saw 5 sites transacted recording a total of S$731mn. However, this marks a 11% decrease from Q4 2022’s S$4.6bn, given the high base effect from the sale of Jurong Point and Swing By @ Thomson Plaza clocked in Q4 2022.
• There has been a clear shift in investors’ appetite from large sites to smaller sites such as commercial and strata sites. The global recovery of the tourism industry has also put hospitality sites in the spotlight, with more redevelopment of commercial sites marketed for hotels or serviced apartments.
• The collective sales market saw relaunches in Q1 2023 at unchanged reserve prices and more projects launched with lower quantum reserve prices under S$100mn.
• Overall, as Singapore remains a haven for investors, investors will continue navigating the market’s price discovery journey and strategically close on quality assets with long-term opportunities.

Market Outlook

• Investors will remain cautious in view of the uncertain economic conditions and rising interest rates. Nonetheless, well-priced commercial and residential sites and deals at a reasonable quantum will attract investors looking to expand their real estate portfolio.
• With China’s reopening, we expect more capital inflow driven by demand from Chinese investors.
• Overall, the residential sector will likely continue to take the major slice of the cake, supported by upcoming government land sales. We expect investments sales to moderate to S$20bn this year from S$28bn last year.

RESIDENTIAL
Softer public resale market to temper upgrading demand

KEY HIGHLIGHTS

Residential Supply Pipeline

Property Price Index

Residential Sales and Launch Volume

Market Commentary

• In Q1 2023, based on URA’s flash estimate, the overall Property Price Index (PPI) rose for the twelve consecutive quarter by 3.2% q-o-q, led by the landed segment and the non-landed RCR segment. Non-landed projects launched during the quarter set new benchmark prices in their localities.
• Total sales transaction volume rose by 3.3% q-o-q in Q1 2023. The increase was led by a 74% jump in transaction volume in the primary market, due to a rise in the number of new project launches. Sales volume in the secondary market, on the other hand, fell by 14% q-o-q in Q1 2023. 24,903 primary units stood unsold as at Q4 2022. The supply-demand dynamics are now more balanced, and the unsold units are expected to be absorbed in about 3 years.
• The public resale market is expected to see somewhat slower sales momentum for this year, moderating upgrading demand for the private market. Growth of organic demand and a healthy labour market will support demand, however.
• Average monthly private home rental transactions in Jan-Feb 2023 fell by 5.2% compared to Q4 2022. Rental growth is expected to slow down in 2023, amid a ramp-up in completions. Risks are growing for a rental correction in the months ahead.

Market Outlook

• Post-Budget 2023, higher marginal buyer stamp duty (BSD) rates apply to the portion of residential properties valued in excess of S$1.5 million. Some slight knee-jerk reactions are expected in the high-end property market. Property price growth could moderate to 5 to 7% for 2023, following 8.6% in 2022.
• The dynamics in the residential market are more fluid than a year ago, on the back of elevated economic uncertainty, borrowing costs and increasing prospects of a rental correction. As developers pick up the pace of launches in 2023, primary sales of 8,000 to 9,000 units could be recorded.

RETAIL
Retail slowdown despite strong tourism recovery

KEY HIGHLIGHTS

Average Retail Prime First-Storey Rental

Retail Sales 3mma y-o-y (%)

Retail Supply Pipeline

Market Commentary

• Retail sales growth in Q1 2023 fell to 4.9% y-o-y, from 8% y-o-y in Q4 2022, due to economic and employment uncertainties as well as rising cost of living with the implementation of the GST increase on 1 January 2023.
• Border restrictions were eased completely in early February. Visitor arrivals rose to 957,605 in February 2023 and are 1,313% higher than a year ago.
• In 2022, retail sales for Wearing Apparel & Footwear, Food & Alcohol, Department Stores, and Watches & Jewellery recorded the highest growth. In 2023 YTD, Food & Alcohol and Wearing Apparel & Footwear saw the highest growth at 24.8% and 12.2% y-o-y, respectively.
• For F&B services, Food Caterers saw the highest improvement of 102.2% y-o-y in 2022 due to the increase in events and air travel, followed by Restaurants which rose by 33.7%. In 2023 YTD, Food Caterers continued to see the highest improvement at 32.6%.
• Despite the ongoing tourism recovery in the quarter, retail leasing demand was dampened by economic uncertainties. Prime first-storey rental rates remained unchanged at Orchard/Scotts Road and Fringe/Suburban Areas, while first-storey rents in Other City Areas recorded a 0.5% decrease in rents to $19.10 psf in Q1 2023. Upper-storey rents across all areas recorded decreases between 0.2% to 0.5%.
• The retail landscape in Singapore is set for further revitalisation, with many developments in major retail belts undergoing facelifts. The Cathay at Dhoby Ghaut will close in August 2023 for a major revamp. Other developments undergoing revamping include CQ @ Clarke Quay and *SCAPE, with expected openings in the later half of 2023 and early 2024 respectively.

Market Outlook

• We expect rental growth of between 5% to 7% for Orchard (prime first-storey) in 2023. For the other retail segments, we forecast rental growth of between 0% to 4% in 2023.

OFFICE
Demand for prime office spaces persist amid uncertain global economic climate

KEY HIGHLIGHTS

Office Rents and Occupancy Rates

CBD Premium and Grade A Office Net Absorption

Office Supply Pipeline

Market Commentary

• Based on EDMUND TIE Research statistics, overall net absorption island-wide reversed from 117,000 sq ft in Q4 2022 to 691,000 sq ft in Q1 2023, largely due to Guoco Midtown’s completion.
• In Q1 2023, occupancy rates for Premium office spaces in Marina Bay and Raffles Place increased by 0.3% pts and 0.2% pts respectively. The overall occupancy rate in the CBD remained at 93.9% pts, while non-CBD and decentralised areas saw a decrease by 0.4% pts and an increase by 0.2% pts respectively.
• Despite improved occupancy, rental growth moderated in Q1 2023 with 0% to 0.5% increases across the various subzones. In the CBD, premium rents at Marina Bay and Raffles Place rose by 0.4% q-o-q. In non-CBD, rents of office spaces in Marina Centre and in Orchard improved by 0.5% and 0.2% q-o-q respectively.
• Leasing activity in Q1 2023 includes Prudential, taking up 150,000 sq ft of office space in Labrador Tower that is expected to be completed in 2024. Guoco Midtown has also been reported to have obtained TOP and tenants like Swiss Re, PIL, Vitol and more have moved into their new space this quarter.
• In 2022, total employment grew by a record 227,800 workers. Manpower Group also forecasts that the Energy & Utilities, Communication services and Financials & Real Estate sectors will be driving the hiring demand.

Market Outlook

• Firms will likely adopt a cautious approach to expansion given the challenging and uncertain environment. Although leasing demand remains moderate this year with more firms opting to rightsize their office spaces, rents could rise marginally, given that supply remains relatively tight beyond 2023.

GENERAL DISCLOSURE

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This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, Edmund Tie & Company can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to Edmund Tie & Company.

© Edmund Tie & Company April 2023
Source: Edmund Tie & Company. Reproduced with permission.

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