Singapore Quarter 4, 2021

Market commentary

Cautiously optimistic prospects for real estate in 2022

ECONOMY

Growth to moderate in 2022

KEY HIGHLIGHTS

GROSS DOMESTIC PRODUCT (GDP)

FIXED ASSET INVESTMENTS (FAI)

UNEMPLOYMENT RATE

CONSUMER PRICE INDEX (CORE INFLATION)

Market Commentary

• Singapore’s economy grew by 5.9% y-o-y in Q4 2021, a moderation from the 7.1% in Q3 2021. However, full y-o-y growth stood at 7.2% in 2021, the highest since 2010.
• The manufacturing sector expanded by 14.0% y-o-y in Q4 2021, accelerating from the 7.9% growth recorded in the previous quarter. The services sector contracted by 4.6% y-o-y in Q4 2021, compared to a growth of 6.2% in Q3 2021.
• Singapore attracted $3.7bn in FAI in Q3 2021, an increase from $3.6bn in Q2 2021 with the electronics sector leading at around $3.4bn.
• MAS kept its inflation outlook unchanged on 25 October 2021. Singapore’s core inflation for 2021 will likely come near the upper end of its 0 - 1% forecast and increase to 1 – 2% in 2022. Overall inflation is forecast to come in around 2% in 2021 and average 1.5 - 2.5% in 2022.
• The labour market continued to recover from the impact of the COVID-19 pandemic. The unemployment rate declined marginally to 2.6% in Q3 2021 from 2.7% in Q2 2021. In Q3 2021, total employment contracted by 8,400, with construction (-6,600), food and beverage services (-2,100) and other service industries (-6,400) bearing the brunt. On the other hand, the information and communications (+4,000), and professional services (+2,500) and administrative and support (+2,000) recorded employment growth.

Market Outlook

• The road ahead is expected to remain uneven for various sectors of the economy. In particular, manufacturing and wholesale trade are expected to remain resilient due to external demand, although slowing Chinese growth does pose a key risk. The recovery for the aviation and tourism industry is also expected to slow due to the fresh Omicron threat.
• With the country’s high vaccination rate and the rapid rollout of booster shots for a wider age group, industries in the service line such as hospitality and food and beverage industry should benefit from an uplift in sentiment and easing restrictions.
• On 24th November 2021, MTI announced that Singapore’s GDP growth forecast for 2022 will be within the range of “3.0% to 5.0%” as more industries resume their activities progressively. As Singapore reconnects increasingly with the world and with the easing of borders, new areas of growth can be expected in terms of ramping up digitalisation and moving towards a greener economy. However, time is required to meet the manpower shortages in various industries, particularly the construction sector.

INVESTMENT

More cautious approach navigating new measures

KEY HIGHLIGHTS

Market Commentary

• Total investment sales for Q4 2021 dipped slightly from Q3 2021 to $6.9bn amid investors’ cautious sentiments.
• Investment sales in the quarter were led by residential, which contributed to $3.3bn (48%),followed by office contributing to $2.8bn (41%).
• For residential sales, nearly $0.5bn was from the sale of two residential sites at Slim Barracks Rise under the Government Land Sales (GLS) programme.
• Office deals comprised 41% of the quarter’s total investment sales. In addition, the transactions for office sales were predominantly strata-titled transactions.
• The collective sale market registered strong activity with a consecutive string of sites launched for sale. A total of six deals were sealed in the quarter, of which three of them constituted part of the top five private investment deals.
• The largest deal in the year was the acquisition of One George Street, a 23-storey office building, by a joint venture between JPMorgan Global Alternatives and Nuveen Real Estate for $1.3bn from CapitaLand Integrated Commercial Trust and FWD Group. The transaction was completed in December.
• A joint venture between Hoi Hup Realty and Sunway Developments was awarded two freehold land parcels at Thiam Siew Avenue for $815mn via a public tender exercise. It was the largest residential development site sold since the previous round of property cooling measures implemented in July 2018.
• Peace Centre and Peace Mansion, a mixed-use development, was sold via private treaty to a joint venture between Chip Eng Seng, SingHaiyi Crystal, and Ultra Infinity for $650mn. It was launched for collective sale in September.
• Located at Shelford Road, Watten Estate Condominium was jointly sold to UOL Group and Singapore Land Group for $550.8mil via collective sale in its third attempt.

Market Outlook

• RESIDENTIAL: The demand for Good Class Bungalows (GCB) is expected to remain strong, though transaction sale volume may ease due to limited available listings. Given the fresh property cooling measures, developers will be subjected to a higher additional buyer’s stamp duty (ABSD) rate of 35 per cent (including 5 per cent non-remittable) and are likely to adopt a more cautious approach towards their land bids. However, amid the tight unsold inventory of private housing units, developers may continue to turn towards the collective sale market to stock up on their land banks.
• RETAIL: Amid the uncertainty brought about by the emergence of the Omicron variant and current restrictive safe management measures, investor sentiment in the retail market remains cautious. Prime retail assets are also tightly held, limiting transaction activity.
• OFFICE: With the gradual resumption of the workforce back to the office, starting with 50 per cent from 1 January 2022, demand for high quality and green spaces will rise to suit occupiers’ evolving requirements. The office market rental recovery has supported investment activity, which is expected to continue in 2022 amid tight supply and companies’ realignment of workplace space strategies.

RESIDENTIAL

Upward trajectory of demand and price attesting to resilience of the private residential sector

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

• According to URA’s flash estimate for Q4 2021, the Property Price Index (PPI) for private residential properties rose for the seventh consecutive quarter by 5% q-o-q to 173.6. Prices for the landed properties grew by 3.7%, while the non-landed prices by 5.4%.
• Based on caveats lodged, new sales and secondary transaction volumes dipped 15% and 4.7% q-o-q respectively in 4Q 2021. Across the market segments, new sales volumes within the OCR witnessed decline of 50% q-o-q due to a sharp decline in launched units, while new sales volume in the CCR and RCR recorded q-o-q growth of 35.0% and 37.0% respectively. On the other hand, secondary sales volume recorded a more uniform decline of about 16.0% - 20.0% q-o-q across all segments in 4Q 2021.
• Secondary transaction volume declined by 17.1% q-o-q to 4,545 units in 3Q 2021. Q-o-q declines were recorded across all market segments, at 22.8%, 13.7%, and 16.6% for the CCR, RCR, and OCR respectively.
• Based on URA’s statistics for developers’ sales in Jul 2021 and Aug 2021, there were three new non-landed project launches in 3Q 2021. 2 property launches sited in the OCR, have achieved around 90% take-up rate to date, indicating robust interest for homes in the suburbs.
• Despite the dropped in sale volume, prices continued to climb. The price increase was observed across all segments in Q4 2021, with RCR registering the highest q-o-q price growth of 7.3%, while CCR and OCR saw an increase of 2.5% and 5.4% respectively. The RCR price growth was attributable to the robust sale of CanningHill Piers at an average price of $2,937 psf.
• There were 4 new non-landed project launches and the robust take-up rate of 82.8% for the new project launch in RCR has attested on the demand for RCR properties while nearly 75% take-up rate for the new project launch in OCR has indicated the continual interest for homes in the suburbs.
• The pipeline supply for private residential homes as of Q3 2021 fell by 0.6% q-o-q to 52,101 units. Likewise, the total number of unsold units for Q3 2021 dropped by 12.8% q-o-q to a record low of 21,551 units for the period commencing from Q4 2017. Based on the last four quarters’ sales pace of new units, it would take just 2.0 years to absorb the unsold supply, attesting to the tight inventory situation.
• Non-landed rental transactions grew by 11.9% q-o-q to 26,759 transactions in Q3 2021. The growth in rental volume was likely fueled by delays in the completion of the properties arising from the supply chain disruption, coupled with the return of expatriates/students via the vaccinated travel lanes (VTL). The growth across all the market segments was broadbased, roughly 11.2% to 12.4% q-o-q in Q3 2021.

Market Outlook

• The strong sales momentum from Q3 2021 initially continued into the first two months of Q4 2021 but slowed in December on the back of the cooling measures and a limited number of new project launches.
• With the imposition of the latest cooling measures to promote housing affordability and curb market exuberance, price growth is expected to moderate. However, we do not expect strong pressures on developers to reduce prices, especially for projects with limited unsold inventory.
• Looking ahead, the tightening of the Total Debt Servicing Ratio (TDSR) could divert some demand towards suburban homes which are more affordable. We also expect some rotation of demand from RCR to OCR in 2022, given the strong price increases in RCR in 2021.
• Demand will continue to be largely supported by local first-time home buyers and HDB upgraders, who are least impacted by the cooling measures. Stable economic prospects and an improving job market in 2022 will further support the demand for private homes.
• However, sales momentum is expected to slow on the back of fewer units from new launches in 2022. Developers will likely exercise more caution in bidding for land parcels over the next few months. We expect a recovery in launch and sales activity in 2H 2022 if the collective sales market stabilises.
• While the cooling measures will dampen sales momentum, the overall market remains supported by a robust labour market, ongoing economic growth, and healthy demand-supply dynamics in the property market. The nation is also better prepared to face new Covid challenges, given the high vaccination rates and booster programme. Our base projection is for a slight correction of primary sales to about 11,000 – 12,000 units for 2022.
• 2022 will be a robust year for the rental market. With the VTL and resumption of air travel bringing more expatriates, foreign workers and students back to Singapore, we foresee rental demand to strengthen further in 2022.

RETAIL

Stabilising prospects for the retail market

KEY HIGHLIGHTS

AVERAGE RETAIL RENTAL (SGD/sq ft)

SUPPLY OF RETAIL SPACES (SQ M)

RETAIL OCCUPANCY RATES

Market Commentary

• Based on EDMUND TIE Research, islandwide net absorption has improved from 151,000 sq ft in Q2 2021 to 355,000 sq ft in Q3 2021. The occupancy rate improved marginally by 0.4% to 91.9% in Q3 2021. In 2021, the occupancy rate grew by 1.5% points, mainly uplifted by the growth in the Fringe/Suburban Area. Rent for Fringe/suburban rose by 2.6% for the year, compared to a marginal growth of 0.1% in Orchard/Scotts Road and a fall in rental rates of 1.2% in Other City Areas.
• The occupancy rate for the Fringe/ Suburban Area improved by 0.2% points to 93.8% in Q3 2021, the fifth quarter of consecutive increase since the start of the COVID-19 pandemic.
• Retail openings in Q4 2021 include GoldHeart at Causeway Point, Tsui Wah at The Heeren, Yakiniku Like at Sengkang Compass One and Don Don Donki opening at Tampines Mall. Retail closures include Omakase Burger closing all their outlets in Singapore, Food Junction at Bugis Junction and Ben’s cookies at Wisma Atria.
• The 3-month moving average of y-o-y change in retail sales (excluding motor vehicles) has fallen from 7.5% in August 2021 to 8.0% in November 2021. Retail sales for Petrol Service Stations, Computer & Telecommunications Equipment and Watches & Jewellery experienced the greatest improvement y-o-y in 3Q 2021. The majority of the retail trade categories experienced a positive growth except for Optical Goods & Books, Others and Departmental stores which are the top three categories that experienced losses.
• For the food and beverage services index for Q3 2021, Restaurants reported the highest decline of 16.8% y-o-y, due to the dining restrictions. Fast food outlets recorded the most improvement increasing by 12.6% yoy in Q3 2021 followed by Cafes, Food Courts & Other Eating Places which rose by 5.7% y-o-y.
• Northshore Plaza I, located in the Punggol Northshore district, has also opened. The new development features a supermarket, eateries, shops, childcare centre and enrichment centres to cater to the needs of residents in the area.

Market Outlook

• We expect suburban malls to continue their outperforming pace in 2022. With their curated tenant mix over the years, the malls are able to cater to the needs of the residential catchment, catering to the daily needs, which further encourage them to patronise the malls. As Covid gains acceptance as endemic within the community, retail sentiment will improve further and we expect stabilisation in the retail sector in 2022. Suburban retail rents will lead the recovery with around 5% to 10% of rental growth, while prime rents in OCR and OCA are also poised for a recovery in 2022.
• Despite the pandemic, some international brands are still looking for opportunities to expand their presence in the Singapore market, particularly F&B brands. Local brands, such as By Invite Only, The Editors Market and Bynd Artisan, have also expanded their retail footprint despite the pandemic.
• Digitalisation, adoption of an omni-channel approach and experimental retail are key trends going into 2022 for the retail sector. Retailers will continue to reinvent themselves and build their online presence, allowing their online and physical storefronts to complement each other. Malls will also continue to adjust their tenant mix, including securing unique and well-known international brands to entice more customers and increase footfall and spending in the malls.

OFFICE

Quality office spaces fuel rental growth

KEY HIGHLIGHTS

Average monthly gross rents (SGD/sq ft)

SUPPLY – Singapore OFFICE SUPPLY (sq ft)

OCCUPANCY RATE OF PRIME CBD OFFICE SPACES

Market Commentary

• Based on EDMUND TIE Research statistics, overall net absorption islandwide improved from a negative 43,200 sq ft in 3Q 2021 to 597,000 sq ft in 4Q 2021. Prime office spaces in the central region experienced a positive uptick in leasing demand in the fourth quarter as companies prepared to work from the office in the new year. The occupancy rate for office spaces in the CBD rose by 0.7% to 93.0% in 4Q 2021. Amid flight to quality, Premium and Grade A CBD rents fell marginally by 0.1% in 2021 although overall CBD rents fell by 3.6%. CBD occupancy rate fell marginally by 0.1% last year; the market was weighed down in the first half of the year before sentiment stabilised.
• With an improved business confidence in 2H 2021 technology companies and the financial sector, in particular the wealth management sector and family offices, continued to expand their office footprint and drive leasing demand. Additionally, with Singapore being a safe haven for global investors and international firms, companies are setting up offices locally in anticipation of a reopening of the workplace.
• Another driver for prime office demand is derived from displaced tenants of Grade B office buildings, who are looking to upgrade to Grade A office buildings. With anticipation for employees to return to the office in 2022, employers are finding the right ways to entice employees to work from the physical office to enhance the company culture and drive innovation.
• Some examples of leasing demand for the quarter are Shopee who is expanding their office into Rochester Commons, PGIM’s relocation from One Raffles Place to CapitaSpring, Gojek shifting from AXA Tower to Suntec Tower 5 and Twitter’s expansion into CapitaSpring from their current office located at CapitaGreen.

Market Outlook

• Moving into 2022, we expect flexibility to be the key theme for the office sector. Flexibility for employees working in the office and companies adopting a hybrid work approach in the long haul, as well as flexibility for tenants as they prefer more flexible lease options. Some companies may gravitate towards incorporating coworking spaces for the employees as an added amenity.
• With office employment improving, companies are also looking to rethink and redesign their office space for current and future employees. Information and communications sector employment has experienced the most growth, followed by financial and insurance services. As the labour market for office employment gradually improves, the government has also been pushing to upskill workers to meet the market demands.
• With Singapore progressing along with its Covid-19 endemic road map, we expect leasing demand to pick up further. In line with the changing preferences of occupiers, traditional office spaces are evolving to facilitate and encourage collaboration and brainstorming of ideas.
• We expect a positive net absorption for 2022, with rental growth of likely 3% to 5% for good quality office buildings as demand continues to strengthen. We expect companies to acknowledge the importance of well-designed quality workspaces in facilitating business networking, employee collaboration and fostering company culture. With the redevelopment of older office stock and a tight supply pipeline in the year, vacancy is expected to fall, and office rents are expected to rise, led by the prime segment.

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 January 2022
Source: Edmund Tie & Company. Reproduced with permission.

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