26 January 2018
Ms. Tricia Song, Head of Research for Singapore at Colliers International

Private home prices in Singapore continued to recover in Q4, growing by 0.8% following a 0.7% increase in Q3. The budding recovery reversed the weakness in the first half to boost the full year price growth to 1.1% - a sharp turnaround from the 3.1% decline in 2016. 

The data from the Urban Redevelopment Authority (URA) showed a broad-based recovery across all segments of non-landed private homes in Q4, led by the 1.4% increase in the Core Central Region (CCR). Improved sentiment in the high-end segment has been reflected in the good take-up in new launches such as Martin Modern and Gramercy Park where prices have continued to inch up. We are positive on the high-end market as Singapore luxury homes offer an attractive value proposition to international investors relative to other key markets where prices have reached peaks.  

The Q4 price growth was due to a broad-based increase across the market segments. 
• The highest price growth came in the Core Central Region (CCR) where prices increased 1.4% QOQ, compared with the 0.1% increase in Q3. For the whole of 2017, non-landed CCR has increased by 0.6% compared to the decline of 1.2% in 2016. Prices in CCR are now 9.5% below its peak in Q1 2013.  
• Prices in the Rest of Central Region (RCR) rose for the fourth consecutive quarter. They increased 0.4% QOQ in Q4, slightly slower than the 0.5% in Q3 and 0.6% in Q2. For the whole of 2017, non-landed CCR has increased by 1.8% compared to the decline of 2.8% in 2016. Prices in RCR are now 10.7% below its peak in Q2 2013. 
• Outside Central Region (OCR) increased 0.8% QOQ, the same rate as Q3. For the whole of 2017, non-landed OCR has increased by 1.4% compared to the decline of 3.4% in 2016. Prices in OCR are now 8.7% below its peak in Q3 2013.

For the overall private residential market, we expect prices to recover over 2018-2021 underpinned by rosier economic growth and supported by significantly lower supply. 

However, in the longer term, there is a risk of an oversupply. We note the sharp increase in unsold inventory in the pipeline as URA included the potential supply from the recent Government Land Sales and en bloc sales into the count. As of Q4, 50,852 units of private homes are in the pipeline (under construction or planned), of which 66.2% or 33,714 units are still unsold. This compares with Q3, where 43,054 units of private homes were in the pipeline of which 55.9% or 24,063 units were still unsold.  Buyers and developers should exercise prudence to prevent an overheated and oversupply situation in the longer term.

Outlook for 2018
We think private home prices have turned a corner as prices across all segments registered two positive quarters of upticks. Prices in RCR have moved up for four consecutive quarters. We expect the prices to recover 5% in 2018, in tandem with the rosier GDP growth.  

The price recovery could also be supported by a more benign supply outlook over the next three years. Supply completions in 2017 was down 20.9% from the peak in 2016, and will taper off further over 2018-2021. However, the supply pipeline beyond 2021 will likely jump with the redevelopments from the current en bloc and collective sales activity. 

While prices are up across the board, the rental market is still struggling. The good news is vacancy is improving and could hit a critical inflection point sometime in 2018. Rents could resume a growth trajectory when most of the new supply that has been completed over the past two years is gradually digested over the next six to 12 months. So, while we expect private home prices to grow 5% in 2018, we expect a sustained recovery in rents is likely to start in mid-2018, and for rents to be flat or register a meagre 1% growth for 2018.  

Developer sales
For the whole of 2018, we project a full-year developer take-up of 12,600 units (ex-ECs), 19% higher than last year's 10,566 units, and the highest since 2013’s 14,948 units. This would be underpinned by pent-up demand, improved sentiment and availability of more choices with more new launches. There may also be spillover demand from sellers of the en bloc sales looking for replacement homes. 

Mr. Duncan White, Head of Office Services at Colliers International

Rental Index
The URA’s office rental index in the Central Region (All Areas) rose for the second consecutive quarter in Q4 2017, at a faster rate of 2.6% quarter-on-quarter (QOQ), compared to 2.4% QOQ in Q3. The upturn in second half of 2017 more than offset the 4.4% decline in the first half to bring the full year 2017 increase to 0.4% compared to the decline of 8.3% in 2016. 

Islandwide occupancy increased 0.7ppt to 87.4% in Q4, from 86.7% in Q3. The occupancy improvement is attributable to a significant net absorption of 592,000 sqft net lettable area (NLA) versus a net withdrawal of stock of 43,000 sqft (NLA) in Q4 2017. Some major leasing deals in Q4 included the lease of 57,000 sq ft at Marina Square by JustCo, and 40,000 sq ft by WeWork at the upcoming Funan development. Q2 and Q3 2017 saw the completion of two major prime office assets in the CBD, Marina One - East and West Towers and UIC Building, which together made up 2.16 million sqft of net lettable area.

Price Index
Correspondingly, the office price index in the Central Region also increased for the second consecutive quarter, at an accelerated pace. URA’s office price index for Central Region (All Areas) increased 2.7% QOQ to 131.4 in Q4 2017, as compared to 0.4% QOQ in Q3 2017. For the whole of 2017, prices of office space decreased by 2.4%, compared with the decline of 2.8% in 2016.

According to URA data, as of Q4 2017, 6.4 million sq ft (gross) of office space is under construction or planned over 2018 to beyond 2022. 

Outlook for 2018
Looking ahead, the services sector is poised to deliver the lion's share of Singapore's real GDP growth in 2018, and this should cascade down into demand for prime office space. Coupled with muted supply pipelines in the next two years, this should pave the way for double-digit CBD prime rental growth over 2018-19. 

While coworking and technology sectors drove demand for office space in 2017, demand growth this year will likely be more broad-based, across a wider spread of industries, particularly from business services such as legal, media, and financial services.

Colliers International estimates an annual average of 0.58 million sq ft NLA (53,670 sq m) of CBD Premium & Grade A office space to come on-stream over 2018-20, significantly lower than the large supply injection of 2.16 million sq ft (200,670 sq m) in 2017. We expect accelerated growth over 2018, and a more graduated rise in 2019. 

Vacancy rates should reduce gradually over 2018-2019, as we firmly move on from the over-supply situation of 2016/17. Continued expectations of new demand throughout 2018 and healthier global economic views will further boost confidence among landlords and occupiers and lift market sentiment. We also expect to see more international companies homing in on Singapore amid rosier economic prospects.

Ms. Tricia Song, Head of Research for Singapore at Colliers International

Rental Index
URA’s Retail Rental Index for the Central Region (All Areas) fell for the 12th consecutive quarter in Q4 2017. It fell 0.5% QOQ vs a decline of 0.2% QOQ in Q3. For the whole of 2017, rentals of retail space decreased by 4.7%, compared with the decline of 8.3% in 2016. This brings the total rental decline to 16.2% since the recent peak of Q4 2014. 

The retail property market is still finding its footing given the significant structural challenges upending the retail sector. The decreased annual decline could signal a stabilization in the next year.

Indeed, URA’s latest data showed the islandwide vacancy rate for retail space dropped to 7.4% in Q4 from 8.2% in Q3 2017. There was net new demand of 689,000 sq ft vs a new supply of 194,000 sq ft in Q4. The key retail development which was completed in Q4 included Northpoint City (South Wing). 

As of Q4 2017, 5.5 million sq ft (gross) of retail space is under construction or planned, of which more than half (3.0 million sqft) was targeted to complete in 2018. 

Outlook for 2018
Retail leasing volumes recorded the first annual growth since 2014, rising 13.9% YOY. Better-performing retailers have been leveraging the soft rental environment for new store openings and expansion plans, though overall turnover of retail tenants remain high. Retail sales (excluding motor vehicles) also saw some stabilisation over 2017, rising 4.1% YOY in November 2017, supported by a rally in tourist arrivals. 

According to Colliers International’s research tracking prime floor retail rents, prime rents along Orchard Road appear to have found some support in 2017, recording a marginal 1.0% YOY increase. Orchard Road prime rents will also remain the primary beneficiary of the surging tourist arrivals in the short-term. 

For the Regional Centres, select shopping malls will outperform, particularly those in suburban precincts with significant catchment areas. We expect the overall retail property market to stabilise over 2018 and 2019, supported by tapering supply over 2019-2022 islandwide, with prime floor retail rents in the Orchard precinct leading the recovery.