Singapore Quarter 2, 2023

SINGAPORE, July 2023

Market commentary

Slowing real estate momentum amid headwinds

Q2 2023 AT A GLANCE

KEY HIGHLIGHTS

Residential
Cooling measures and elevated borrowing costs are expected to temper homebuying demand. Property prices could trade sideways in the second half of this year. Nevertheless, the overall fundamentals of the property market are likely to remain intact, underpinned by sustained organic demand and a relatively tight labour market.

Investment
Q2 2023 saw investment activity with REIT acquisitions, shophouse and Good Class Bungalow (GCB) transactions. The investors are showing continued interest in lower quantum sites. However, investment sales for 2023 is still expected to moderate amid cautious investor sentiments.

Retail
Despite a subdued retail climate, the sector is continually experiencing a period of revitalisation with the entrance of new-to-market retailers and luxury brands incorporating F&B components and pop-up stores.

Office
Rental growth moderated in Q2 2023 despite the increase in occupancy. Firms will continue to remain cost-cautious but may commit to taking up larger spaces due to the limited supply pipeline of office spaces over the next few years.

ECONOMY

KEY HIGHLIGHTS

GDP Growth

Growth picked up slightly to 0.7% y-o-y in Q2 2023 from 0.4% in Q1 2023. The MTI projects growth of 0.5% to 2.5% for 2023. Given the slowdown in growth this year from last year’s 3.6%, firms are likely to remain cautious towards investments and expansions.

Retrenchments

Retrenchments have risen for the third consecutive quarter in Q1 2023 to its highest level in over two years. The rising spate of job layoffs will continue to curtail the strength of retail spending.

Non-oil Domestic Exports

Amid global economic headwinds, export growth has been falling in negative territory. EnterpriseSG has downgraded the NODX growth forecast for 2023 to “-10% to -8%”, which will further cool sentiment in the manufacturing sector.

Household Debt

Net worth of households has continued to rise, while household debt has declined. Households are not over leveraged and widespread distressed property sales are unlikely.

INVESTMENT
Slowdown in investment sales but sustained interest in smaller sites and niche assets

KEY HIGHLIGHTS

Investment Sales Sectoral Contribution (%)

Investment Sales (S$ billion)

Top 5 Private Investment Sales (S$ million)

Market Commentary

• Investment sales decreased in Q2 2023 by 34% to S$2.8 billion from S$4.2 billion in Q1 2023. Activity in the quarter was supported by REIT acquisitions, the IGLS tender award of the Plot 7 Tampines North Drive site, shophouse and GCB sales. Transacted deals are still leaning towards lower quantum deals below S$100 million as investors remain cautious given the uncertain economic climate. REIT acquisitions in the quarter included Capitaland Ascendas REIT’s acquisition of Seagate’s The Shugart as well as Lendlease REIT’s acquisition of an effective 7.709% stake of Parkway Parade. The collective sales market saw a decrease in transactions, with Kew Lodge being the only successful sale in Q2 2023, as compared to Q1 2023 with five sites transacted.
• The public investment sales market recorded around S$72 million with the award of the Parry Avenue site for the development of private assisted living. Overall, bidding activity moderated due to recent cooling measures.
• The collective sales market saw the relaunch of a site at Hoe Chiang Road and Lim Teck Kim Road in Q2 2023 at an unchanged reserve price. Other projects with lower quantum reserve prices, were launched for sale in Q2 2023. In early July, 3 projects relaunched at unchanged reserve prices.

Market Outlook

• Overall, given the uncertain economic climate, investors are likely to lean towards lower quantum deals as well as niche assets in real estate sectors that will reflect the evolving market and business needs or trends. The residential sector will continue to be supported by the upcoming GLS tender closings in July and September. The Tender for the site at Marina Gardens Lane also closed at the end of Q2 2023 with the top bid price of S$1.03 billion and is currently pending award. We expect investment sales to moderate to S$18 billion to S$20 billion this year from S$28 billion last year.

RESIDENTIAL
Launches to drive demand for new private homes

KEY HIGHLIGHTS

Residential Supply Pipeline

Property Price Index

Residential Sales and Launch Volume

Market Commentary

• In Q2 2023, based on URA’s flash estimate, the overall Property Price Index (PPI) dipped by 0.4% q-o-q, a reversal from the 3.3% growth in the previous quarter, and was the first decline in about three years since Q1 2020.
• Total sales transaction volumes climbed by 28% q-o-q in Q2 2023. The increase was led by a 75% jump in transaction volumes in the primary market driven by four major new project launches. Sales volume in the secondary market rose by 8% q-o-q in Q2 2023.
• Given the punitive hike in ABSD for foreign buyers, the homebuying share of foreign demand slipped from 3.7% in May to 2.7% in June. Comparatively, the homebuying share of foreign demand in Q1 2023 was 6.9%. The relatively lower ABSD rates for SPR and PR will continue to sustain demand for private home purchases.
• Average monthly private home rental transactions in Q2 2023 fell by 3.4% q-o-q to 6,465 units. Rental pressures are expected to ease in the second half of this year as more completions are coming onstream.

Market Outlook

• The price trajectory is now fluid as the persistent construction costs are likely to put a floor on price, while the tighter financing environment would weigh on housing affordability. Property prices could trade sideways in the second half of this year. Overall price growth is expected to moderate and rise at a more sustainable level of 3-5% in 2023, following 2022’s 8.6% growth.
• Against the backdrop of the cooling measures and macroeconomic headwinds, secondary sales volume could moderate to 8,000-10,000 units this year, down from 2022’s 14,791 units.
• As developers pick up the pace of launches in the second half of 2023, coupled with a relatively tight labour market and sustained organic demand, new home sales are poised to reach 7,000-8,000 units for 2023, up from 2022’s 7,099 units.

RETAIL
Slowing retail sales and tourism growth

KEY HIGHLIGHTS

Retail Rents

Retail Supply Pipeline

Market Commentary

• The retail stock grew in Q2 2023 with the completion of The Woodleigh Mall (206,000 sq ft) and Boulevard 88 (32,000 sq ft) as well as the reopening of Shaw Plaza (68,000 sq ft).
• Retail sales in May recorded a 1.8% y-o-y growth, experiencing a decline from the 4.7% y-o-y growth in Q1 2023. The declining growth is attributed to the economic slowdown, on-going inflationary pressures and an increase in the number of Singaporeans travelling overseas.
• Despite China reopening and international flights gradually resuming, visitor arrivals have plateaued in recent months and declined slightly to 1.11 million in May 2023. The slight dip may be attributed to resistance from budget-conscious travellers facing higher airfares to Singapore, pricier hotel rooms and a strong Singapore Dollar.
• Prime first-storey rental rates increased by 1.5% and 1.0% to S$39.80 psf and S$33.40 psf, respectively at Orchard/Scotts Road and fringe/suburban areas, while First-storey rents in Other City Areas recorded a 0.5% increase in rents to S$19.20 psf. Upper-storey rents across all areas recorded increases between 0.0% and 0.5%.
• The retail industry is continually revitalised by recent new-to-market retailers like the highly anticipated doughnut chain, Mister Donut, and Chinese Coffee Chain, Luckin Coffee. Other new-to-market F&B retailers include Korea’s Compose Coffee, US Jamba Juice and Australia’s Chaffic bubble tea.
• In addition, high-end fashion retailers are incorporating F&B retail components, creating café concept stores to offer immersive retail experiences. Coach launched their first Coach Café at Neil Road this April, while Ralph Lauren is set to open Ralph’s Coffee at Marina Bay Sands this July. Marimekko has plans to open its first store with a café concept in ION Orchard this September.
• The trend of pop-up stores also remains significant among retailers such as the HermèsFit gym on Orchard Road and Victoria’s Secret café at Mandarin Gallery.

Market Outlook

• Orchard (prime first storey) could lead rental growth, with a forecast of between 4% and 5% in 2023, underpinned by the gradual tourism recovery and a limited supply pipeline. Retail rents in Other City Areas are expected to increase by 1% to 2% in 2023, supported by the workforce return. Fringe/Suburban Areas retail rents could post growth of 2% to 3% for the year.

OFFICE
Rental growth for prime office spaces moderated amid economic uncertainty

KEY HIGHLIGHTS

CBD Premium and Grade A Office Net Absorption

Office Supply Pipeline

Average Office Rents and Occupancy Rates

Market Commentary

• EDMUND TIE Research statistics show overall net absorption islandwide decreased from 691,000 sq ft in Q1 2023 to 136,000 sq ft in Q2 2023. Office rents largely remained flat, except for Marina Centre Grade A rents which saw a 0.5% growth from Q1 2023.
• In Q2 2023, occupancy rates for Premium office spaces in Marina Bay decreased by 0.5 percentage points, while Premium office spaces in Raffles Place recorded a 0.7 percentage points increase. The overall occupancy rate in the CBD remained at 94.3 percentage points, non-CBD and decentralised areas saw a decrease of 0.2 percentage points and an increase by 0.2 percentage points respectively in Q2 2023.
• Leasing activity in Q2 2023 included Publicis Groupe’s lease of approximately 55,000 sq ft at Guoco Midtown, the largest office relocation deal in the CBD in the quarter. Additionally, Morgan Stanley reportedly secured 100,000 sq ft of office space at Central Boulevard Towers and will relocate from Capital Square.
• According to Handshakes, a data analysis firm, in 2023, 182 family offices opened between 1 January and 24 April, following 690 and 672 openings in 2022 and 2021, respectively. The rise in family offices in Singapore has supported strata office sales, and the market will continue to see a healthy take-up of strata office spaces given robust demand and limited supply.

Market Outlook

• Firms remain cautious about taking larger office spaces due to the hybrid work trend and cost management. However, given the limited incoming supply of office developments, larger multinational firms will maintain interest in leasing larger space.
• Despite the high occupancy and relatively tight supply, our 2023 growth forecast for Premium and Grade A office rents in the CBD is revised from 1-3% to 0.3-0.5%, given the subdued business climate and overall cautious market sentiment.

GENERAL DISCLOSURE

DISCLAIMER - EDMUND TIE & COMPANY
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 July 2023
Source: Edmund Tie & Company. Reproduced with permission.

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