Please refer below for Colliers' commentary on Urban Redevelopment Authority (URA)'s 2Q 2022 Real Estate Statistics.
- Underpinned by the continued economic recovery as well as strong back-to-office momentum as a result of the substantial easing of pandemic measures in April 2022, the URA office rental index in the Central Region showed an increase of 2.4% q-o-q, picking up pace from the 1.6% growth in the preceding quarter.
- Rental growth was broad-based with median rents of Category 11 office spaces trending higher for the fifth consecutive quarter, by 0.9% q-o-q, while Category 22 office spaces grew 4% q-o-q.
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 Core CBD Premium & Grade A segment grew by 1.8% from the preceding quarter to S$11.10 psf per month, supported by occupiers’ continued preference for newer and higher quality office buildings with efficient specifications, smart features and green credentials.
- Island-wide office saw a positive net absorption of 24,000 sq m in Q2 2022, compared with the decrease of 13,000 sq m in Q1 2022. However, the island-wide vacancy rate tightened to 12.0% at the end of Q2 2022, from 12.8% at the end of the preceding quarter.
- Colliers Research has observed broad-based leasing demand in Q2 2022, with space take-up coming from technology firms, asset managers, insurance providers, legal companies and energy businesses.
- For the rest of 2022, geopolitical and economic headwinds could dampen business sentiments and temper leasing demand as some occupiers adopt a wait-and-see approach on their business decisions. In addition, recent news about technology firms laying off and slowing their hiring might raise concerns that leasing demand from tech companies will slow. However, Colliers expects that multi-national tech firms with healthy financials will continue to grow their presence in Singapore, which is seen as a gateway to Southeast Asia, thus supporting office leasing activity.
- On the supply front, the availability of good quality office stock in the Core CBD remains tight. This is due to a lack of new supply coming onto the market as IOI Central Boulevard Towers will only be completed in 2H 2023. In addition, ageing assets are expected to be decanted from the existing office stock via redevelopments, with Clifford Centre being the latest office building to receive redevelopment approval from URA.
- Besides the tight supply situation, increasing operational costs faced by landlords due to inflationary pressures will result in higher gross rents as service charges rise. Colliers anticipates service charges could increase by up to 20%.
- Hence, the upward rental growth trajectory is expected to remain well-supported. With office rents in the Core CBD Premium & Grade A segment having grown by 3.1% in 1H 2022, Colliers expects full year 2022 rental growth for this segment to be around 5-7%.
- Rents of retail space in the Central Region decreased by 0.5% q-o-q, almost similar to the 0.4% q-o-q decrease in the preceding quarter.
- Nevertheless, other retail indicators continued to show further signs of recovery, in tandem with the substantial relaxation of pandemic measures and border restrictions in April 2022. Retail sales (excluding motor vehicles) grew at 22.1% y-o-y in May 2022, extending the 13.5% uptick in April 2022, after accounting for seasonal effects. Singapore’s international visitor arrivals grew for the fifth straight month in June, reaching around 543,700, up from the 418,500 recorded in May.
- Based on Colliers’ basket of retail malls, prime retail rents in both suburban and Orchard exhibited growth of 0.7% and 0.6%, respectively q-o-q in Q2 2022, compared with 0.7% and 0.4% in Q1 2022. Leasing demand in Q2 2022 was healthy, supported by the expansion of a mix of retail trades such as athleisure, daily necessities as well as F&B. For example, the opening of Lululemon at I12 Katong is the brand’s first store in the East, while Daiso’s new 15,000 sq ft concept store3 at Jurong Point is the first of such outside Japan. French-inspired bakery Paris Baguette opened its new flagship store at Raffles City in June 2022, featuring its first ever exclusive teatra premium tea retail concept.
3 The concept store will include the typical Daiso brand, Standard Products (minimalist and sustainable products) and Threeppy (products that are “lady-like”, girlish and adorable”).
- In addition, several pop-up stores have opened during the quarter, featuring special thematic offerings, multi-sensorial immersive experiences and big brand collaborations. Some notable examples include Clarins setting up its roving truck at Paya Lebar Quarter, Hillion Mall and Canberra Plaza, while the Orchard Road area also saw other pop-ups such as the Gucci and Adidas collaboration at Design Orchard as well as the Louis Vuitton and Nike collaboration outside Ion Orchard.
- Island-wide quarterly net absorption in the private retail segment was positive once again at 3,000 sqm in Q2 2022, compared with the decrease of 14,000 sqm in the previous quarter. This was contributed mainly by improvement in occupancy in two sub-markets, namely 10,000 sqm in the Fringe Area as well as 8,000 sqm in Rest of Central Area4.
4 This refers to the Central Area excluding the Downtown Core and Orchard planning areas.
- The vacancy rate of the suburban private retail market (as measured by OCA) remained unchanged, at 6.1% in Q2 2022. With median rents of the suburban market unexpectedly declining by 1% this quarter, this could potentially indicate that higher asking rents might have hit the threshold of some retailers. For the Orchard and Central Area Outside Orchard sub-markets, rentals have yet to fully recover given that most of the pandemic and border restrictions have only eased at the end of April. As such, median rents of the Orchard sub-market decreased marginally by 0.1%, whereas median rents in the Central Area Outside Orchard sub-market held steady in Q2 2022.
- With the easing of domestic pandemic and travel restrictions, footfall to malls and tenant sales have shown firmer signs of picking up. However, retailers will face headwinds such as manpower shortages and higher operating costs arising from inflationary pressure and supply chain disruptions. Higher interest rates and the prospect of a possible recession could reduce discretionary income and prompt consumers to tighten their wallets, thus curtailing retail spending.
- Prime retail is unlikely to see a full recovery until tourist numbers recover to pre-pandemic levels, and until travel restrictions in North Asia are lifted. According to the International Air Transport Association (IATA), that will only happen by 2023.
- As cited in the examples above, retailers are still willing to try new concepts and formats to capture consumer spend, and provide an omnichannel experience which will continue to support retail take-up.
- Another saving grace for the retail market is that upcoming new retail supply is expected to be muted; the average new retail supply in the next few years is approximately 30% of the historical 10-year average, with no new supply for prime retail. As such, this could lend support to a more meaningful improvement in rents and occupancies in the coming quarters.
- Based on URA’s data, the growth for private residential property prices picked up its pace again to come in at 3.5% q-o-q, from the 0.7% registered in Q1 2022. Prices are now +4.2% year-to-date and +18.9% from its recent trough in Q1 2020 to reach a historical high.
- The landed segment saw a healthy increase of 2.9% q-o-q to reach a new high, moderating from the strong growth of 4.2% in Q1 2021. With landed properties in limited supply, prices for this exclusive segment may continue to climb further.
- The non-landed segment rebounded by 3.6% q-o-q, from the 0.3% q-o-q decline last quarter. This growth can be attributed to the RCR segment, which saw a 6.4% q-o-q increase, after rising an impressive 26.7% from its last trough in Q2 2020 to reach a new historical high. The price growth in this segment is likely to be attributed to the strong take-up at attractive projects such as Piccadily Grand and Liv@MB in Q2 2022, which set new price benchmarks for the segment as they are developed on higher land prices.
- Notably, the number of unsold units (including ECs) in the quarter has increased to 17,506 this quarter from 15,965 in the previous quarter. In addition, there is a potential supply of around 8,000 units which have not been granted planning approval, which will provide a substantial supply of private housing ready for sale over the next few years. The government has also made a conscious effort to increase the supply of residential units in the confirmed list of the GLS program in 2022 to meet the strong housing demand and ensure that the market stays stable and sustainable.
- Rentals of private residential properties increased at a faster pace of 6.7% in Q2 2022 compared with the 4.2% increase in Q1 2022 (+16.2% y-o-y and +22.4% since its last trough in Q3 2020). Higher rents may be fuelled by the tight supply in the market, but may moderate as more homes get completed; the number of private residential units expected to be completed in 2022-2023 will be significantly higher than the preceding two years. These newly completed homes will cater to those looking to rent in the near term.
- Q2 2022 numbers have demonstrated the strong purchasing power of buyers, with higher mortgage rates appearing to have limited impact on buyers’ sentiments. The strong take-up at some projects reflects pent-up demand for attractive projects with strong attributes such as location and proximity to amenities.
- For the rest of the year, upcoming launches are concentrated in the OCR and also come with attractive attributes. For example, Lentor Modern, an integrated project in an upcoming estate and Sceneca Residence, which is next to the MRT. These mass-market launches are likely to attract upgraders and genuine occupier demand, which will boost price growth in the OCR.
- Therefore, Colliers expects residential market prices to remain resilient in the near term on the back of attractive launches. Additionally, developers will be motivated to bring forward their launches in light of rising interest rates which will impact buyer affordability, and higher construction costs affecting their margins.
- However, the upcoming hikes in borrowing rates may eventually price some buyers out of the market in terms of their mortgage eligibility. In addition, the combination of macroeconomic uncertainties, higher cost of living and historical high prices may also deter some prospective buyers.
- Finally, the increasing supply of homes, in terms of unsold inventory, pipeline coming onto the market and newly completed units will also help to alleviate the supply crunch as well as moderate price and rental growth.
For more real estate insights, please reach out to our expert Catherine He, Head of Research for Colliers in Singapore.