OFFICE

Mr. Duncan White, Head of Office Services, Colliers International:
Sales prices and rents of office properties continued to recover in Q4 2018, thanks to stronger demand for space from a broad range of sectors, as well as improved investment appetite for prime office assets.
  
In Q4 2018, URA’s Office Rental Index for the Central Region rose for the sixth consecutive quarter. Rents grew 0.5%, slowing down from the 2.5% growth in Q3 2018, bringing full year 2018 rental growth to 7.4%, the highest annual growth since 2014’s 9.8%. Current rents are still 8.1% below the most recent peak in Q1 2015. 

Overall the statistics allude to a strong cumulative rental recovery of 12.8% for office space in the Central Region, since the market trough in Q2 2017. However, island-wide vacancy as tracked by URA increased by 0.1ppt QOQ to 12.1% during Q4 2018, as there has been an increase in completed new office stock in the rest of Central Region, namely new office towers PLQ 1 and PLQ 2. 

Office sales prices on the other hand grew at an accelerated pace, on the back of more en bloc transactions during the quarter such as sale of Robinson 77 and 78 Shenton Way.  URA’s Office Price Index for the Central Region rose 2.4% QOQ in Q4 2018 as compared to 0.1% QOQ in the preceding period. Office prices in the Central Region grew 5.7% in 2018 and are now 8.9% above the recent low in Q2 2017.  

The punitive additional buyer’s stamp duty (ABSD) measures on the residential sector since July 2018 should continue to fuel a shift in investor interest towards the commercial sector. 

Outlook
Based on Colliers’ research, CBD Premium and Grade A rents have risen 15% in 2018, driven by positive economic momentum, broad-based demand and a benign supply condition. Vacancy rate for this basket of prime office assets stood at a healthy 5.4% as of end-December 2018.

Colliers Research forecasts that with a higher base for comparison in 2018, CBD prime office rents will likely grow at a slower pace – at about 8% - in 2019. Meanwhile, Grade A and Premium CBD office vacancy is expected to continue to trend below 6% until 2022. 

We believe the growth momentum in the office property sector will continue to carry through from 2018 into 2019, supported by healthy occupier demand. The limited availability of new office stock in the city centre over the next couple of years should remain supportive of Premium and Grade A rents in the CBD. In addition, the government’s push to promote technology, innovation and R&D in Singapore will continue to help feed growth in the office market. 

Broadly, we expect reduced new CBD Grade A office supply over 2019–2021, with annual expansion averaging 2% of stock, and the continued tightening of vacancy should support rental growth.


RETAIL

Ms. Tricia Song, Head of Research for Singapore, Colliers International:
URA’s retail real estate indices for Q4 2018 showed a surprising rental uptick amid an increase in vacancy. This is also the first positive rental uptick since a long-running decline which started in Q1 2015. 

URA’s Retail Rental Index for the Central Region rose by 1.2% QOQ, compared to the 1.2% decline in Q3 2018.  Except for a blip in Q1 2018 which showed a 0.1% QOQ uptick, the rents have declined a cumulative 18.1% between Q1 2015 to Q3 2018.  

URA’s Retail Price Index for the Central Region, rose by 1.5% QOQ; in tandem with rents, and continuing the previous quarter’s 0.3% increase. 

Meanwhile, island-wide retail vacancy increased for a second consecutive quarter as more retail stock was completed progressively. Retail vacancy increased by 0.9 ppt QOQ to 8.5% in Q4 2018. On a year-on-year (YOY) basis, vacancy has increased by 1.1 ppt since Q4 2017. During the quarter, the largest new supply injection came from Jewel Changi Airport with a Gross Floor Area (GFA) of 86,300 sq m (929,000 sqft). Raffles Hotel Shopping Arcade and City Gate also saw 11,500 sq m (124,000 sqft) and 9,500 sq m (102,000 sqft) of GFA completed in Q4 2018 respectively. 
 
Outlook
Consumer spending has remained cautious. Based on figures released by Singapore Department of Statistics, the retail sales index (excluding motor vehicle sales) increased by 0.6% YOY in October 2018 and decreased by 0.2% YOY in November 2018. 

Colliers believes retail landlords have done a commendable job in 2018, proactively optimising the trade-mix and leveraging on technology and digitalisation of their malls. So far, shopper traffic and tenant sales appear to have stabilised or improved slightly. 
Landlords need to continuously engaging shoppers with new offerings and enhanced experiences in the new era of omni-channel shopping lifestyles.

Besides the continued challenge from e-commerce, we expect elevated new retail space supply in late 2018 to 2019 (equivalent to 3.0% of current stock), spread out over the central region, city fringe and suburban areas. Supply should taper off significantly from 2020. In 2019, we expect ground floor retail rents in prime shopping centres along Orchard Road to rise marginally by 1-2% YOY, due to the lack of new stock; while prime floor rents for Regional Centres (suburban) should stabilise.

For the Regional Centres, those in suburban locations with significant catchment areas and MRT connections, should outperform the less strategically-located suburban malls. 


RESIDENTIAL

Ms. Tricia Song, Head of Research for Singapore, Colliers International:
Prices of private residential properties dipped by 0.1% from Q3 to Q4 2018 - unchanged from initial estimates released earlier this month. This brought the overall increase in private home prices to 7.9% for the whole of 2018, as compared with the 1.1% growth in 2017.

Overall private residential prices are now 3.2% below the peak in 2013.

The price growth last year was largely fueled by pent-up demand for homes, attractive new launches, and a more positive economic outlook for Singapore. However, we do not expect private home prices to continue to rise rapidly in view of the new property curbs implemented last July. 

We estimate that overall private home prices could potentially climb by 3% in 2019, in line with the economic growth – barring any unforeseen events. The rise in home values in 2019 would likely be led by the Core Central Region (CCR), which will potentially see several new project launches.

Landed Homes
Prices of landed properties decreased by 2.0% QOQ in Q4, reversing the 2.3% growth in Q3. This brings landed home prices to +6.3% in full year 2018, compared to -0.5% in 2017. Prices are still 9.1% below their Q3 2013 peak.

Non-Landed Private Residential
According to URA’s statistics, prices of non-landed properties climbed by 0.5% in Q4 2018, after remaining unchanged in the previous quarter. The growth was driven by price increases in the Rest of Central Region (RCR) and Outside Central Region (OCR).

This brings full year 2018 non-landed private home prices increase to 8.3%, compared to the 1.3% increase in 2017. Prices are now 1.4% below a peak in Q3 2013. 

Among non-landed homes - during Q4 2018 - CCR was the only segment that declined, while RCR and OCR improved, completely reversing the trend seen in Q3 2018.

CCR
In Q4 2018, prices of non-landed properties in CCR decreased by 1.0%, compared to the 1.3% increase in the previous quarter. The decline appears to stem mainly from secondary (resale) transactions as prices at newly launched luxury residential developments such as 8 Saint Thomas, New Futura, South Beach Residences, and Marina One Residences have been holding up. 

In Q4, 8 Saint Thomas sold 22 units at a median price of SGD3,238 psf, up from the median price of SGD3,226 psf over 20 units sold in Q3 2018. New Futura continued to sell 11 units at a median price of SGD3,721 psf compared to SGD3,559 psf over 15 units in Q3. South Beach Residences sold 24 units at a median price of SGD3,354 psf in Q4 2018, compared to 3 units at SGD3,308 psf in Q3 2018. Marina One Residences sold 29 units at a median price of SGD2,543 psf in Q4 2018, compared to 45 units at SGD2,503 psf.  

Moving forward, we expect CCR home prices could likely climb by 5% for the whole of 2019, supported by underlying demand for homes in the prime districts amid several upcoming new launches. Residential developments that may be launched for sale in CCR this year include: former Dunearn Gardens, former Royalville, Juniper Hill, former Cairnhill Mansions etc. 

RCR
Home values in the RCR rose 1.8% in Q4 - after a 1.3% decline in Q3 – as Woodleigh Residences was launched at a benchmark SGD2,000 psf, and the earlier launches such as Park Colonial, Stirling Residences, Margaret Ville, Tre Ver continued to hold up prices.  

We estimate that RCR private home values could possibly rise by 3% in 2019, due to potentially more attractive new launches in 2019 such as Silat Avenue, former Normanton Park, former Park West, former Amber Park, and former Katong Park Towers. 

OCR
Prices also rose in the OCR by 0.7% in Q3, compared with the marginal 0.1% decline in Q3.  The Affinity at Serangoon sold 123 units in Q4 2018 - its highest quarterly sales since its launch in May 2018 - at a median price of SGD1,497 psf in Q4 2018, after dropping prices in Q3 2018. In Q4, Whistler Grand was the only major launch in OCR, selling 197 units at a median price of SGD1,353 psf.  

Given the substantial pipeline of new residential supply in the OCR - such as the 2,225-unit Treasure at Tampines and 1,410-unit The Florence Residences - we expect prices in OCR to remain flat in 2019.

Supply pipeline and vacancy: supportive in near-term

During Q4 2018, 4,720 private homes obtained Temporary Occupation Permit (TOP), compared to 1,088 units in Q3. This brings total completions of private homes in 2018 to 9,112 units, a sharp decline of 45% from 2017’s 16,449 units and 56% from 2016’s historical high of 20,803 units. 

URA expects 8,926, 4,332 and 12,354 private home completions in 2019, 2020, and 2021 respectively, which are below historical average completions. However, completions could rise sharply to 19,540 units in 2022, from the bumper en bloc transactions from 2016 to mid-2018.
For the non-landed segment, vacancy rate continued to improve to 6.8% in Q4 from 7.3% in Q3. The peak vacancy was 10.4% in Q2 2016. 

Rentals
The overall private residential rental index surprisingly fell 1.0% QOQ in Q4 after rising three quarters. The weaker rents in Q4 was led by a sharper decline in rentals in the landed homes segment during the quarter.

This brings 2018 full year rental growth to 0.6%, compared to 1.9% decline in 2017. 
We expect rents to go up 3-5% in 2019, as more well-located projects are completed - which could help to boost rents. In addition, the anticipated decline in new completions and potentially demand for rental homes from displaced en bloc sellers could also lend some support to the leasing market.

Outlook
Developers sold 8,795 private residential units in 2018, compared with 10,566 units in the previous year – in line with Colliers’ projection. For 2019, we estimate that developers could potentially sell 9,500-10,000 new homes amid the varied launch pipeline and gradual market acceptance of the new cooling measures.

Broadly, we believe the private residential market in Singapore will continue to stabilise this year in tandem the macroeconomic conditions. Private home prices could rise by 3% for the full 2019, barring any unforeseen events or policy shifts.