CBRE has released a research report, Singapore Real Estate – A Recovery Playbook, which identifies areas of opportunities post-pandemic for real estate players, offering insights into leveraging the structural trend shifts post-pandemic to position their assets or buy into a recovery across the Office, Retail and Industrial sectors.
This is amidst evidence by various leading indicators including GDP growth, net number of new entities formed, employment statistics and the Straits Times Index which have shown that an economic recovery in Singapore is well underway, says CBRE.
Ms Catherine He (何俐慜), Director of Research, Southeast Asia, and author of the report, says, “Even pre-pandemic, structural shifts have begun to alter real estate. These changes have since been accelerated and with a recovery underway, it will be beneficial for investors and asset owners to be acquainted with structural trends and changes, so that they can adjust their real estate strategies accordingly – either to invest in, or to cater their assets to areas of growth and demand.”
CBD Incentive (CBDI) and the Strategic Development Incentive (SDI) to facilitate redevelopment
• The CBDI and SDI schemes, which aim to encourage the redevelopment of older office buildings into mixed-use projects, have become even more pertinent and timely with flexible working trends.
• The take-up of these schemes is likely to result in the long-term reduction of office stock in the CBD, which plays a part in the government’s decentralization strategy to have more offices located outside the CBD. Office transactions motivated by redevelopment potential
• Since the announcement of these schemes, office transaction values have been robust (increasing from 6.0% of investment sales in 1Q 20 to 24.2% of total investment sales in 1Q 21). This is likely motivated by the anticipated rental recovery, and redevelopment potential of some major assets.
• The resurgence in office sales underscores the stability and ‘safe haven’ reputation of Singapore, which attracts global firms to set up and expand their bases here. This provides support for office space demand and gives investors long term confidence in the local office sector.
Ophir-Rochor precinct values and rents to get uplift
• With two upcoming integrated developments – Guoco MidTown and the redevelopment of Shaw Towers, as well as the amalgamation of KH KEA Building and Odeon Towers, the Ophir-Rochor precinct looks set to be revitalized. This will benefit the surrounding vicinity and prominent assets such as DUO, Suntec City, and South Beach.
• Hence, capital values and rents in the area are likely to get an uplift from these plans, moving them even closer to core CBD Grade A office values.
Food production in retail spaces
• With the massive growth in on demand food delivery, having food production in retail spaces will allow restaurants to monetize this trend, as well as provide retailers the flexibility of expanding beyond their physical space to meet online orders.
• With lower start-up costs and less manpower required, cloud kitchens are expected to grow and become the launchpad for many new eateries, allowing them to trial virtual menus, and adapt quickly to customers’ responses and food trends.
• Retail landlords with ageing malls can capitalise on housing cloud kitchens. Older suburban malls, in particular, are seen as likely candidates due to their proximity to residential areas, as well as their cheaper rents. Shophouses could also make for suitable locations, especially those already approved for F&B use.
• Setting aside retail space for cloud kitchens with new dining concepts, some with dine-in areas, would help drive traffic to the mall. This could also become a new norm, as F&B players shift their focus towards takeaways and deliveries as an essential part of their operations. Refreshing tenant mix with work and living spaces in malls
• As malls lose parts of their traditional tenant base, vacant space is increasingly being taken up by a variety of new uses, leading to a more complex tenant mix, such as incorporating work and living spaces.
• This results in a symbiotic relationship as it creates additional traffic for the mall on one hand, and convenience for the users of these workspaces on the other.
• Examples include the redeveloped Funan DigitaLife mall, JustCo taking up space at Marina Square and The Centrepoint Orchard, and Switch work booths at Frasers Property and Lendlease properties.
Integrating online and offline
• Retailers will have to integrate online and offline strategies to help their tenants and to provide customers with a seamless shopping experience.
• Retailers such as Decathlon and NTUC FairPrice are using their physical stores as fulfilment centres or click-and-collect locations, which is a solution that suits both under-used suburban malls and overstretched logistics operators.
• Some retail players have set up their own e-commerce platforms to complement sales at their properties. Examples include CapitaLand’s eCapitaMall and Frasers Property Retail’s Frasers eStore.
Repurposing warehouses for specialised uses such as prime logistics and cold storage
• With the rise in demand for specialized assets for e-commerce, food and healthcare logistics, industrial space will have to be repurposed to suit these growth areas.
Freeing up capital via a sale-and-leaseback arrangement
• Industrial asset owners could take advantage of higher prices and demand to do a sale-and-leaseback to free up capital by going with an asset light approach and leverage on their underlying credit strength.
• A sale and leaseback will not involve any operational change, as tenants can generally secure long leasebacks with renewal options to ensure business continuity.
Business parks (BPs) to be in demand
• BPs cater to growth sectors and allow users to achieve the same utility of good quality office space at lower costs, making them attractive assets for rental yield and capital appreciation.
• BPs are usually occupied by established tenants, tightly held by a few owners, and have longer tenures.
• Quality and well-located BPs are often highly sought after by occupiers looking for lower rents outside the CBD.
• The demand for BPs will be even more acute with the increasing importance of the biomedical sector in Singapore, and the government investing heavily in providing the relevant infrastructure and encouraging global pharmaceutical companies to set up their bases here.