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Commentary on URA's statistics | Q1 2022

ura statistics, colliers research, property trends

Colliers comments on URA's Q1 2022 statistics across office, retail and residential properties in Singapore.


  

Please refer below for Colliers' commentary on Urban Redevelopment Authority (URA)'s Q1 2022 Statistics

Office

  • Underpinned by a broad-based economic recovery as well as the back-to-office momentum, the URA office rental index in the Central Region showed an increase of 1.6% q-o-q, a significant improvement from the 0.9% growth in the previous quarter.  

  • Median rents of Category 11 office spaces trended northwards for the fourth consecutive quarter, by 2.4% q-o-q, slightly higher than the growth of 2.2% q-o-q observed for Category 22 office spaces.
    1 Refers to office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area.
    2 Refers to the remaining office space in Singapore which are not included in “Category 1”
  • Likewise, based on the basket of office buildings tracked by Colliers Research, rents of the CBD Premium & Grade A segment grew by 1.5% from the preceding quarter to S$10.26 psf per month, whilst CBD Grade B rents rose by 1.1% to S$8.25 psf per month in Q1 2022.

  • The ongoing “flight to quality” movement has continued to benefit newer developments with high quality specifications; accelerating rental growth at such developments. The CBD Premium & Grade A rents, as tracked by Colliers Research, showed an expansion of 1.5% q-o-q to SGD$10.26 psf/month. In addition, there are signs that the recovery in the office market has broadened, with CBD grade B also rising by 1.1% q-o-q to SGD$8.25 psf per month in Q1 2022, as compared to Q4 2021 when it was flat. 
Table 1: Median rentals based on lease commencement

  URA Q1 2022_Median rentals of office space

  • Island-wide office saw a negative net absorption of 13,000 sqm in Q1 2022, compared with the negative net absorption of 10,000 sqm in Q4 2021.  However, the island-wide vacancy rate remained unchanged at 12.8% at the end of Q1 2022, due to the reduction in the stock of office space.

  • Colliers Research observes that while non-banking finance occupiers and technology companies remain as key leasing drivers in 1Q2022, other sectors such as consumer goods also saw healthy demand.


Outlook

  • While office demand will likely continue to be well-supported by the growth of technology and financial occupiers, Colliers Research has noticed that office demand is becoming more diversified; with more non-bank financial services, consumer products, and pharmaceutical firms taking up space in the CBD. 

  • There are also new market entrants setting up shop in Singapore (notably Chinese tech firms), who are attracted to its efficient handling of the pandemic, political neutrality, and reputation as a gateway hub to South-East Asia.  

  • High quality office spaces with updated specifications such as those in the CBD Premium & Grade A segment will likely be the main beneficiaries as occupiers become more selective and focused on providing the right type of office environment; with a heightened emphasis on sustainability and wellness, as well as talent attraction.

  • However, with higher CBD rents, Colliers expects the market recovery to spill over to city fringe and grade B offices.

  • On the supply front, new CBD office supply remains tight; Guoco Midtown will be the only major completion in the CBD this year, while aging office stock is expected to be taken off the market to be redeveloped under the URA rejuvenation schemes (CBD incentive scheme and strategic development incentive scheme).

  • With Singapore successfully transitioning into an endemic state and with the back to office momentum, CBD Premium & Grade A rents are likely to continue heading northwards. Vacancy rates could also tighten over the same time frame before the next wave of supply in 2023.

Retail

  • Rents of retail space in the Central Region decreased marginally by 0.4% q-o-q, compared to the 0.6% q-o-q increase in the preceding quarter.

  • Nevertheless, other retail indicators continued to show signs of recovery to pre-pandemic levels. Over the first two months of 2022, retail sales (excluding motor vehicles) grew a healthy 7.7% y-o-y. The average monthly retail sales in January and February 2022 marginally surpassed those of corresponding months in 2019. In addition, business sentiments according to a quarterly survey by the Department of Statistics improved further with the end of work-from-home as default.

  • Based on Colliers’ basket of retail malls, prime retail rents in both suburban and orchard exhibited stronger growth of 0.7% and 0.4% q-o-q in Q1 2022, compared with 0.5% and 0.1% in Q4 2021. Leasing demand was stable, supported by segments such as athleisure and F&B brands increasing their presence. For example, Adidas opened its largest and first brand centre “Homeground” at Knightsbridge, offering a range of personalised experiences for the customer- from bespoke athleisure attires to “instagrammable” photo spots. In addition, several new-to-market brands debuted in Q1 2022, including Roberta’s Pizza, and Hästens, a Swedish premium bedding brand.

  • Islandwide quarterly net absorption in the private retail segment was negative at 12,000 sqm in Q1 2022, compared with the increase of 14,000 sqm in the previous quarter. This is contributed mainly by reduced occupancy of 13,000 sqm in Downtown Core Planning Area.

  • The suburban private retail market (as measured by OCA vacancy rates), has remained resilient, with the lowest vacancy rate among all segments, at 6.1% in Q1 2022. In addition, OCA vacancy rates are substantially lower than its historical 5-year quarterly average of 7.4%. While median rents of the suburban market have shown a slight decline of 0.8% this quarter, the magnitude is still lower than that of the decrease observed in the Orchard market, at 2.3% q-o-q.


Outlook 

  • With the reopening of borders and return of tourism, Singapore is poised to see a recovery of retail rents and prices this year, alongside the recovering economy. 

  • The end of work-from-home as a default will see crowds returning to the CBD, which will boost the demand for retail spaces in the Downtown Core area. 

  • With the substantial easing of safe management measures from 29 March 2022, doubling of dine-in group size to 10 fully vaccinated people, removal of restriction on selling and drinking alcohol after 10:30pm, and resumption of live performances, consumer footfall and tenant sales are expected to be bolstered.

  • The allowance for 75% of staff to return to the office and return of business travel would bring more vibrancy to the CBD and provide a much-needed boost to the Orchard retail market, which is heavily dependent on tourist spending. The government also aims to restore passenger volumes at Changi this year to at least 50% of pre-pandemic levels, up from the 15% attained in end-2021.

  • Retailers can finally see the light at the end of the tunnel and are likely to be more confident in their expansion plans, notwithstanding additional challenges posed by inflationary pressures and manpower shortages. In addition, the limited release of prime retail supply in the next few years should lend support to rents and occupancies in the coming quarters.

Residential

  • Based on URA data, the growth for private residential property prices moderated to 0.7% q-o-q, from the 5.0% registered in Q4 2021. Prices are now +7.8% y-o-y and +14.9% from its recent trough in Q1 2020 to reach a historical high.

  • The landed segment saw a robust increase of 4.2% q-o-q to reach a new high, continuing its strong growth of 3.9% in Q4 2021. Median unit prices for landed properties in the CCR and RCR are at new highs, increasing by 6.4% q-o-q and 4.1% q-o-q respectively. With landed properties in limited supply, prices for this exclusive segment may continue to climb higher.

  • The non-landed segment witnessed a decline of 0.3% q-o-q for the first time in seven quarters, slowing from the 5.3% q-o-q increase last quarter. This slowdown can be attributed to the RCR segment, which saw a 2.7% q-o-q decline, after rising an impressive 21.1% from its last trough in Q2 2020 and reaching a new high in Q4 2021. Therefore, this can be seen as a healthy correction, but prices in this segment are likely to resume their growth with the launch of attractive projects such as Piccadily Grand and Liv@MB in Q2 2022, which are developed on higher land prices.

  • Healthy activity was observed once more in the resale market amid construction delays and the widening price gap between new launches and resale properties. 3,377 resale units were transacted in Q1 2022, making up 63.2% of total transactions in Q1 2022, higher than the 59.9% in the previous quarter, and significantly higher than the typical quarterly average of around 55%.

  • With take-up exceeding units launched for the past four quarters, unsold inventory (excluding ECs) continued to ease to 14,087 units, the lowest level since Q3 2017 (16,031 units). As such, there is likely to be keen bidding for upcoming government sites and small to mid-sized collective sales projects.

  • Rentals of private residential properties increased at a faster pace of 4.2% in Q1 2022 compared with the 2.6% increase seen in Q4 2021, +12.1% y-o-y and +14.6% since its last trough in Q3 2020. Rentals may be fuelled by buyers who are still in the market for replacement homes, or still waiting for their homes to be completed due to construction delays. 
 
Outlook 

  • As the first data point post cooling measures and given that the first quarter is traditionally a slower quarter, this moderation in growth is to be expected. However, prices and sales might pick up in Q2 2022 with the launch of major projects (such as 407-unit Piccadilly Grand, 298-unit LIV@MB and 268-unit Sceneca Residence), and as uncertainty over the cooling measures dissipate. 

  • The re-opening of borders might also prompt more demand from relocation on the back of Singapore’s effective handling of the pandemic. We expect foreigner demand to recover, especially for higher end properties where they are able to better manage the higher taxes and duties. 

  • As more companies begin to increase headcount alongside Singapore’s economic recovery, the pick-up in foreign hiring activity and reopening of borders would likely lead to a further rise in rental demand over the near term.

  • With the higher additional buyer stamp duties, new home sales should come from first time buyers and upgraders, thereby fuelling further growth in the OCR and RCR segments.

  • Potential buyers might also be motivated to take action and lock in rates now before mortgage rates see a significant increase. 

  • With the pace of new launches slowing, higher prices and rising mortgage rates, new home sales should moderate 20-30% from the 13,027 units recorded in 2021 to around 10,000 units. Further, momentum in private home prices is expected to moderate and rise by just 3-5% in 2022, tracking the projected growth in GDP.
 

For more real estate insights, please reach out to our expert Catherine He, Head of Research for Colliers in Singapore

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Catherine started her career as an Investment Analyst at IFC, the investment arm of the World Bank group, where she participated in the screening, due diligence, financial modelling, and execution of debt and equity investments. She also managed a portfolio of investments through financial analysis and the preparation of quarterly and annual reports. After completing her MBA at INSEAD, she joined Standard Chartered Bank as a Management Associate before starting her own company in Real Estate valuation and forecasting using Machine Learning. Catherine then joined Colliers from CBRE Research. 

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