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Singapore Quarter 3, 2022

Market commentary

Silver lining in retail amid slowing economic outlook

ECONOMY

Persistent headwinds set a cautious tone ahead

KEY HIGHLIGHTS

 

GROSS DOMESTIC PRODUCT (GDP)

 

FIXED ASSET INVESTMENTS (FAI)

 

UNEMPLOYMENT RATE

 

CONSUMER PRICE INDEX (CORE INFLATION)

 

 

Market Commentary

  • In Q3 2022, Singapore’s economy expanded by 4.4% y-o-y, a slight moderation from 4.5% in the previous quarter. Growth during the quarter was led by the Accommodation & Food Services, Real Estate, and Other Services sector, in line with the lifting of community and border measures as well as the steadfast tourism recovery.
  • In the quarter, growth for services industries accelerated and recorded growth of 6.1% y-o-y, while goods producing industries rose at a slower pace of 2.2% y-o-y.
  • Singapore’s secured investment commitments continued to strengthen and totalled SGD6.3bn in FAI in Q2 2022, a nearly three-fold increase from SGD2.2bn in Q1 2022. As such, we anticipate further job creation and value-added income generation. Similar to the previous quarter, the electronics investments contributed to the bulk of FAI, at SGD2.9bn (46%).
  • The unemployment rate continued trending downwards to 2.1% in Q2 2022, from 2.2% in Q1 2022. As of August 2022, the unemployment rate was 1.9%, a drop from 2.1% recorded in the previous month. In Q2 2022, total employment rose at a faster pace by 71,100, led by improvements in the construction sector (+25,300) and other services industries (+8,500). However, the tech industry slowdown continued to weigh on tech companies’ growth prospects and resulted in recent layoffs by several companies.
  • Core inflation continued to edge upwards to 3.8% in Q2 2022 and hit 4.9% y-o-y for the period of July-August. The protracted Russia-Ukraine war has elevated energy and petrol prices. The tight labour market coupled with firm consumer spending may compel businesses to pass on the additional cost to consumers. To combat the rising inflation momentum, the MAS tightened the monetary policy in July, in a surprise off-cycle move, and October.

 

Market Outlook

  • Amid the global economy’s further deterioration and softening outlook for outward-oriented sectors, the MTI narrowed the country’s 2022 GDP growth forecast to “3.0 to 4.0%”. Similarly, both the IMF and AMRO have also lowered their respective 2022 growth forecasts for Singapore.
  • The labour market is expected to continue its recovery in the second half of this year, though its pace may be affected by global headwinds and uncertainties. Nonetheless, hiring sentiments are anticipated to remain strong, though wage pressures could ease, in the next three months.
  • Upcoming talent-attraction initiatives, such as the new Overseas Networks and Expertise (ONE) Pass (for top talent across all sectors) and longer 5-year Employment Pass (EP) option (for specific tech occupations), will reinforce Singapore’s status as a talent hub amid intensification of global competition for talent in response to the tight labour market.
  • As upside risks to inflation remain pronounced, the MAS expects core inflation to “likely stay around 5%” for the rest of 2022, and into early 2023. Amid the uncertain geopolitical climate, including growing US-China tensions, inflation is expected to stay elevated over the next few quarters and ease more discernibly in the second half of 2023.
  • At the end of August, there was a further easing of community and border measures, such as the removal of legal requirement for indoor mask-wearing, except for settings such as public transport and healthcare facilities, as well as the removal of the seven-day SHN requirement for all non-fully vaccinated incoming travellers. As Singapore pushes ahead toward living with Covid-19, the recent updates on vaccination should strengthen our readiness for the next wave.

 

INVESTMENT

Slowing momentum in Q3 2022

 

KEY HIGHLIGHTS


 

Market Commentary

  • In Q3 2022, investment sales saw a slowdown as interest rates continued to increase and market uncertainties persist, although there were some traction from increased en-bloc sales activity and more land parcels sold under the Government Land Sales (GLS) programme. Total investment sales for Q3 2022 were at SGD5.51bn, a 37% decrease from Q2 2022.
  • The residential sector led the investment sales in the quarter, contributing to $3.43bn (62%), followed by the office sector contributing to $1.17bn (21%).
  • The public investment sales market recorded nearly $1.1bn from the Government Land Sales (GLS) Programme, comprising three residential sites, at Lentor Central, Lentor Hills Road (Parcel B) and Bukit Batok West Avenue 5 (EC).
  • Bidding activity in September for the launched Lentor sites and Bukit Batok West site was moderate, with a lower than usual number of bids. With close to 3000 units of supply (under construction and potential yield) introduced within the past year, developers might have chosen to be cautious and strategic in their bids.
  • The collective sale market saw activity picking up in Q3 2022 with en-bloc sales closing for developments like Chuan Park, Euro-Asia Apartments and Park View Mansions. The collective sales market saw $1.37mn in sales in Q3, mostly with re-launched sites from Q2 closing during the quarter. In Q3 2022, several residential sites were launched or relaunched for tender, including Trendale Tower, Orchard Bel Air and The Beaumont.
  • Despite the continued easing of Covid restrictions, with uncertainties in the market we anticipate investment transaction volumes to slow down from its strong momentum in the first half of 2022 as investors choose to maintain a more conservative investment stance.

 

Market Outlook

  • RESIDENTIAL: With strong demand for private residential assets, especially in areas that have seen announcements of redevelopment plans, developers are likely to respond to the strong interest for private homes. Developers will also continue to respond to collective sales to replenish their landbanks, while still exercising caution in their investments amidst a soft market climate and the new property cooling measures introduced in September. Moreover, developers will see more opportunities for investment with promises of transformation, such as in areas near upcoming MRT lines like the Thomson-East Coast line and the Cross-Island Line as well as those near Paya Lebar Air Base.
  • COMMERCIAL: With the recent loosening of Covid-19 policies and subsequent upbeat in the tourism sector, we expect investment sales for commercial assets will continue upward. In addition, the government’s plans to redevelop the West, Changi region and the Northern Gateway present opportunities to ride on the demand created for commercial assets in those areas that will likely be attractive for investors. However, downside risks include rising construction costs and operating costs alongside economic headwinds.
  • RETAIL: With the recent loosening of Covid-19 mask-wearing restrictions and recovery in tourism, retailers can look to the upcoming events scheduled and have greater ease and flexibility to create retail experiences for consumers. Investment activity will likely follow on the same upward trajectory as retail sales continue to recover.
  • OFFICE: As firms have mostly adapted their working arrangements to the current situation and preferences, investors have seen an increased demand for future-ready offices. We expect continued improvement in the office leasing market with a tight supply of quality office spaces in prime areas, and continued healthy investment activity to develop or redevelop new and older office assets.
  • INDUSTRIAL: Singapore has built a reputation in the manufacturing and logistics sectors and is a stable starting ground for firms looking to expand into Southeast Asia. Investment activity and demand for Singapore’s industrial assets will likely continue its growth momentum, backed by the growing biomedical sector as well as the strong growth in rental supported by the manufacturing and logistics sectors.

 

RESIDENTIAL

Property cooling measures to moderate demand

 

KEY HIGHLIGHTS

 

PROPERTY PRICE INDEX OF ALL PRIVATE RESIDENTIAL PROPERTIES

 

PRIMARY AND SECONDARY SALES TRANSACTION VOLUME

 

RESIDENTIAL PIPELINE SUPPLY

 

PRIVATE HOME RENTAL TRANSACTIONS

 

Market Commentary

  • In Q3 2022, based on URA’s flash estimate, the overall Property Price Index (PPI) for private residential properties rose for the tenth consecutive quarter by 3.4% q-o-q, after rising 3.5% in the previous quarter. Both landed and non-landed property prices rose by 1.2% q-o-q and 4.1% q-o-q respectively. There were five new projects launches in Q3 2022 in the OCR and a landed housing development located along Mount Rosie Road in the CCR.
  • Based on caveats lodged, primary and secondary sales transaction volumes fell 8% and 19% q-o-q respectively in Q3 2022. Within both the primary and secondary markets, the decline in activity was in the RCR and CCR segments. The sales transaction volume in the OCR segment, on the other hand, rose by 11% q-o-q in Q3 2022, driven by new project launches.
  • The pipeline supply for private homes rose by 2% q-o-q in Q2 2022. The total number of unsold units rose by 6.6% q-o-q due to sustained sales activity, and we expect the units to be absorbed in 2.5 years. The tight supply situation will continue to lend pricing power to developers.
  • Private home rental transactions fell by 7.3% q-o-q in Q2 2022 for the third consecutive quarter due to ongoing economic headwinds and limited project completions due to construction delays during the pandemic.

 

Market Outlook

  • Looking ahead, the recent announcement of the upcoming foreign talent schemes such as the ONE Pass to draw top talent will pave the way for more inflow of foreigners, which will help to boost homebuying demand and rental.
  • The government introduced a slew of measures in 30 Sep this year to moderate demand from private property owners amidst the rising interest rate environment. The medium-term interest rate floor used to compute the loan eligibility to satisfy the Total Debt Servicing Ratio (TDSR) limit of 55% for property loans granted by private financial institutions will be raised by 0.5 pts to 4%. In addition, current and present private homeowners are now required to wait at least 15 months after the sale of their current property before they are allowed to purchase a non-subsidised resale flat in the public market.
  • While demand will still be largely supported by local first-time homebuyers, upgrading momentum is softening. The public housing resale price rose by 2.4% q-o-q in Q3 2022, down from the 2.8% growth in the previous quarter due to rising interest rates and living costs, amid slowing economic growth
  • Although the overall property market is supported by a tight labour market and strong household balance sheets, the new measures amidst the rising interest rate environment would moderate homebuying demand. Our projection for primary sales is about 9,000 units for this year, down from 13,000 last year.
  • Home prices maintained growth momentum this quarter, driven by strong sales in the OCR new launches. Riding the momentum, property price growth could reach around 9% this year, with a further moderation to 1-3% growth for 2023 due to economic and geopolitical headwinds as well as rising interest rates. However, there will no strong pressure on developers to reduce prices, especially for projects with limited unsold inventory.
  • On the whole, the residential market is now closer to an inflection point, amid slowing economic growth, rising living costs and interest rates. Factors that could cause prices to turn south include an outright recession impacting employment and income, or further cooling measures.

 

RETAIL

Shopper traffic returned to normal, underpinning retail sales

 

KEY HIGHLIGHTS

 

AVERAGE RETAIL RENTAL (SGD/sq ft)

 

 

SUPPLY OF RETAIL SPACES (SQ M)

 

RETAIL OCCUPANCY RATES

 

 

 

Market Commentary

  • Based on EDMUND TIE Research, island-wide net absorption reversed from -129,000 sq ft in Q1 2022 to 86,000 sq ft in Q2 2022. The overall occupancy rate experienced a slight increase of 0.1 percentage points to 91.8% in Q2 2022.
  • The occupancy rate for Other City Areas saw an increase of 0.7 percentage points to 88.6% in Q2 2022, respectively. However, Orchard/Scotts Road saw a slight decrease of 0.4 percentage points to 88.3% while occupancy rate in Fringe/Suburban Areas maintained at 93.9%.
  • In Q3 2022, rents for Orchard/Scotts Road outperformed other areas, rising by nearly 3.0% q-o-q likely due to the new influx of tourism and events such as F1 Grand Prix that has increased footfall for malls in the area. In comparison, rental rates saw growth of 1.1% and 2.2% in Other City Areas and Fringe/Suburban Areas respectively.
  • In Q3 2022, retail openings included Nike’s new store at Vivocity, coming right after their recent unveiling of another new store, Nike By Bugis at Bugis Junction, in May. Another athleisure brand, Puma, also saw its largest outlet opening at 313@Somerset. Both stores adopted different concepts to appeal to local shoppers, with their own respective unique in-store shopping experience. Hopping on the same trend of creating unique in-store shopping experiences, Zalora launched a supermart-style pop-up shop with Adidas in early August at Bugis Junction. Singapore also saw new brands entering the market with luxury brands Ginza Xiaoma and Kydra launching physical stores in Ngee Ann City, Norqain in Wisma Atria, and & Other Stories at Ion Orchard.
  • On a 3-month moving average y-o-y basis, retail sales growth (excluding motor vehicles) improved to 18.2% as at August, from 9.7% in April. Retail sales for Wearing Apparel & Footwear, Food & Alcohol, Department Stores, and Watches & Jewellery recorded the greatest improvement y-o-y. Most of the retail trade categories experienced positive growth, except for Supermarkets & Hypermarkets, Mini-Marts & Convenience Stores and Motor Vehicles.
  • Based on Q2 2022’s food and beverage services index, Food Caterers recorded the largest improvement of 96.9% y-o-y due to higher demand for both event and in-flight catering with the easing of restrictions, followed by Restaurants which rose by 61.9%.

 

Market Outlook

  • The retail sector will continue to see demand grow with the easing of major pandemic measures such as mask-wearing and travel restrictions. Retailers are likely to tap on shopping trends such as introducing short-term concept pop -up stores, creating interesting collaborations between different retail sectors or popular F&B brands and creating a more personalised in-store shopping experience. Building on the e-commerce market growth, retailers will likely continue to bring cohesion between the online retail experience and in-store experience, emphasizing on the importance of a brick-and-mortar store in a digitalising world.
  • With continued revamping of older retail assets and the introduction of renovated and new retail stores, the retail sector will see increased footfall in F&B stores and shopping malls as consumers are drawn towards the new shopping experiences. However, the economic headwinds, rising interest and inflation rates will likely cap consumer spending as consumers exercise caution in view of the economic uncertainties that lie ahead.
  • Moving forward with the easing of travel restrictions, more globally recognised events like the Singapore Grand Prix in September will continue to draw tourists into the country. With upcoming enhancements to retail assets over the next year such as plans for a sports facility in Orchard Road and redeveloping *SCAPE in Orchard and Clarke Quay, we expect the retail climate to brighten gradually and record a broad-based recovery.

 

OFFICE

Tight supply to support rental growth

 

KEY HIGHLIGHTS

 

Average monthly gross rents (SGD/sq ft)

 

 

SINGAPORE OFFICE SUPPLY (sq ft)

 

 

OCCUPANCY RATE OF PRIME CBD OFFICE SPACES


 

 

Market Commentary

  • Based on EDMUND TIE Research statistics, overall net absorption island-wide reversed from -76,235 sq ft in Q2 2022 to 410,848 sq ft in Q3 2022. Leasing demand for prime office spaces in central areas saw growth in this quarter as firms that have gone through leasing negotiations in previous months to occupy the new spaces.
  • There is robust demand for premium spaces in Marina Bay and Raffles Place, with a significant increase of 3.7 percentage points in Raffles Place premium office occupancy rates. Occupancy rates for Raffles Place and Grade A office spaces in Shenton Way/Robinson Road/Tanjong Pagar have also increased in the quarter. The overall occupancy rate for office spaces in the CBD rose by 1.3 percentage points to 95.1% in Q3 2022.
  • With limited supply of quality spaces, there is a rise in rental rates across most subzones of the office sector in Q3 2022. In the CBD, both premium rents at Marina Bay and Grade A rents at Raffles Place rose by similar rates of 2.0% q-o-q respectively. In Non-CBD, rents across different subzones improved by up to 1.1% q-o-q, while office rents in decentralised areas remain unchanged in Q3 2022.
  • Some of the major leasing updates in Q3 2022 included La Française opening their first Singapore office at Frasers Tower and Bytedance taking up a few levels in Capital Tower.

 

Market Outlook

  • The workplace has regained importance for companies and employees since the loosening of Covid-19 restrictions as more companies have allowed employees to return to their offices in full force.
  • Looking forward, more office buildings are expected to feature flexibility in space usages, sustainability-centric design, and the incorporation of smart technology to cater to growing demand trends. With investments in new office assets and the redevelopment of older assets, leasing demand will likely see a strong growth in the coming quarters as firms see their visions of their ideal office space materialise.
  • With the limited supply of quality office spaces, especially for future-fitted offices in the prime CBD, landlords who possess such spaces will be able to maintain their bargaining power. Given the current tight supply, we expect Premium and Grade A office rents to rise by 6% and 9% respectively.

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 October 2022

Source: Edmund Tie & Company. Reproduced with permission.

 

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