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Commentary on the URA’s Q3 2021 Real Estate Statistics

View our commentary on the latest insights into Singapore's office and retail property sector.


SINGAPORE, OCTOBER 22 2021 --

Shirley Wong, Director of Research for Singapore at Colliers:

  • Office rents and property prices in the Central Region saw a decline, dragged by weakness in the Central Area.
  • Colliers expects the office market to continue its rental upcycle over the next few years, supported by economic growth and low supply in the pipeline, among other factors.
  • Retail property rents in the Central Region fell for the 7th quarter in a row, owing to weaker demand in the Central Area.
  • Colliers sees room for stabilisation of retail rents over the next few quarters.

Office
Retail

OFFICE:

Q3 2021 saw office rents and prices fell 3.5% QOQ and 2.4% QOQ, respectively. The declines in both rents and property prices was primarily due to the weakness in demand in the Central Area, while that of the Fringe Area held up relatively well. Meanwhile, vacancy increased further to 12.9%, as net absorption stays negative with higher supply.

Rents
The Urban Redevelopment Authority’s (URA) Office Rental Index for the Central Region registered a decline of 3.5% QOQ in Q3 2021, after two quarters of increase (Q2 2021: +1.3% QOQ). This brings the year-to-date (YTD) 2021 rental increases to only 1.0%, and the URA Office Rental Index is currently 17.8% below its most recent peak in Q1 2015. The decline is led by falling rents in the Central Area, which slipped 4.0% QOQ (Q2 2021: +1.2% QOQ), while that of the Fringe Area held up better, with a marginal decline of 0.2% QOQ (Q2 2021: +1.7% QOQ). On a YTD basis, rents in the Central Area and Fringe Area have risen 0.4% and 2.8%, respectively.

Prices
Prices also followed a similar downward trend, with the URA’s Office Price Index for the Central Region declining 2.4% QOQ versus Q2 2021’s increase of 0.9% QOQ. This brings the YTD 2021 office price decline to 4.1% QOQ. The weak Q3 2021 price performance was attributed to falling prices in the Central Area, which saw a decline of 3.5% QOQ (Q2 2021: +1.1% QOQ), while prices in the Fringe Area bucked the trend with a 1.0% QOQ increase (Q2 2021: -2.6% QOQ). On a YTD basis, prices in Central Area have fallen 6.4%, while those of the Fringe Area have recovered 4.0%.

Vacancy and completions
Island-wide vacancy of office properties tracked by the URA increased further to 12.9% in Q3 2021 from 12.6% in Q2 2021, driven by an increase in net supply of 279,900 square feet (Q2 2021: 366,000 square feet). Meanwhile, net absorption continued to contract by 53,800 square feet (Q2 2021: -248,000 square feet), as a result of continued business downsizing and office space rationalisation. 

Outlook
Based on Colliers’ research, Central Business District (CBD) Grade A office rents rebounded by 0.7% QOQ to SGD9.59 per square feet in Q3 2021, after five consecutive quarters of decline, driven by strong net absorption from the technology sector. We note that selective Grade A landlords are increasingly more optimistic and prioritising rents over occupancy.

Overall Grade A vacancy increased 70bps sequentially to 6.3% in Q3 2021, mainly due to the newly completed CapitaSpring and 30 Raffles Place, which saw vacancy rates of 42% and 51%, respectively. Meanwhile, Grade B vacancy also edged up 40bps to 9.7%, dragged by occupancy deterioration on Beach Road/Bugis. We expect vacancy to moderate to 5.5% by end-2021, and benign supply to keep vacancy levels at 5.0% or below thereafter. Between 2021-2025, we expect an average annual supply expansion of 3.0% of stock versus 4.7% in the last five years.

As the economy continues to recover, we forecast Grade A office rents to grow 1.6% in 2021. We expect the office market to continue its rental upcycle over the next few years, supported by economic growth, low supply in the pipeline, the expansion of the technology sector, as well as property rejuvenation within the CBD.


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RETAIL:

The retail market continued to remain weak with rents in the Central Region falling for the seventh quarter (-2.7% QOQ), dragged by weaker demand in the Central Area (-3.3% QOQ). Meanwhile, property prices in the Central Region prices saw some stabilisation, as prices remained flat.

Rents
The URA’s Retail Rental Index for the Central Region continued to decline in Q3 2021, sliding 2.7% QOQ 
(Q2 2021: -0.5% QOQ) and bringing the YTD decline to 7.4%. This is the seventh consecutive quarter of decline, resulting in rents falling 21.0% in total and bringing rents to 32.6% below the previous peak in Q4 2014. The drag came from the Central Area, which saw rents decline 3.3% QOQ in Q3 2021 (Q2 2021: flat QOQ), while rents in the Fringe Area edged down by 1.2% QOQ (Q2 2021: -1.4% QOQ). 

Prices
The URA Retail Price Index for the Central Region remained flat sequentially, after declining for three quarters (Q2 2021: -2.8% QOQ). Performance was again dragged by the Central Area, which saw property prices decline marginally by 0.5% QOQ (Q2 2021: -1.5% QOQ). Prices in the Central Area, on the contrary, did well, and increased 4.7% QOQ, after a decline of 6.1% QOQ in Q2 2021. This brings the YTD decline to 6.0%, dragged by the Central Area (-7.7%). 

Vacancy and completions
Island-wide retail vacancy improved to 8.1% in Q3 2021 from 8.5% in the previous quarter, helped by stronger net absorption of 355,200 square feet (Q2 2021: 150,700 square feet) and lower net supply of 75,300 square feet (Q2 2021: 193,800 square feet).

Outlook
COVID-19 has accelerated the ongoing recalibration of the retail industry. The exit of several brands has created opportunities for new brands to enter the market through concept and flagship stores, as part of their omni-channel distribution network. Landlords were pushed to adjust their tenant optimisation, asset repositioning and placemaking strategies, in response to the changes in the retail industry.

Total retail sales (excluding motor vehicles) in August 2021 was flat (0%) YOY, as the low-base effects wear off, while pent-up demand in H1 2021 softened. Nonetheless, we continue to expect a K-shaped recovery for the retail sector with an uneven recovery among different trades. Online sales, as a proportion of total retail sales, rose to 14.1% in August 2021, and is likely to see further gains going forward, amid a paradigm shift in consumer habits.

Overall, we see room for stabilisation of retail rents over the next few quarters. We forecast the average retail rents to decline by 1.8% in 2021, with a reprieve from the limited 2021-2025 island-wide supply (0.8% of total stock per annum versus the 10-year historical average of 1.1%), most of which are concentrated in the suburban and fringe areas, where there are well-defined population catchments.

 

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Wallace Goh