According to CBRE’s latest research report “Real Estate Market Outlook 2020 – Singapore”, the property market in Singapore is expected to remain resilient in the year ahead. This is despite an expected muted economic performance on the back of heightened external headwinds that may continue to cloud Singapore’s trade prospects and imperil business and consumer confidence.
Desmond Sim, Head of Research for Singapore and Southeast Asia at CBRE, says, “While the economic outlook is challenging, the government stimulus packages may help to mitigate any immediate impact and the favorable macro environment will ensure mid- to longterm stability that will in turn lend support to the real estate market. Broadly, the current market uncertainties call for all market players to remain watchful and ride on structural trends such as technology, sustainability and the sharing economy. These trends are likely to have an impact on investment returns and occupier demand, and could also lead to investors looking up the yield curve into new alternative asset classes such as co-living, senior housing or data centers.”
He adds, “Looking at sectoral performance, the prospects of the office market look stable, with average rents of Grade A (core CBD) space opined to have peaked and thus expected to hold steady in 2020. The suppressed logistics leasing market amid global uncertainties and disrupted regional supply chains will be cushioned by limited supply pipeline, resulting in flat rents for the year ahead. Retail real estate will see a further widening of the rental gap between prime and secondary space, with growing pressure on landlords to maintain rents and occupancy for their portfolios.”
Sectoral highlights from Real Estate Market Outlook 2020 – Singapore:
• In light of economic uncertainties, business sentiments remain largely cautious, which may result in lower capital expenditures and more renewals in 2020. Future demand will commensurate with the slower pace of economic growth, which is likely to result in an average net absorption that is lower than the five year historical average net absorption of approximately 1.1 million sf.
• Office market demand will be more balanced in 2020, with leasing demand falling back on traditional sectors from finance, insurance and technology industries, while the agile space sector eases off in take-up. More small- to mid-sized transactions of less than 30,000 square feet are likely to emerge in the near term.
• In 2020, 1.89 million square feet of islandwide office supply is scheduled for completion; of which, only two buildings within the core CBD (79 Robinson Road and part of 30 Raffles Place) are able to accommodate large floor plate requirements of above 20,000 square feet. More Grade A developments with large efficient floorplates are slated for completion in 2021 and 2022. Consequently, flight to efficiency will take place over the next three years.
• Vacancy levels are expected to trend upwards over the next few years and with demand levels expected to moderate further, the rental expectation gap between landlords and occupiers is narrowing, which is a likely indication that pace of rental increase is near its tail-end. Coupled with limited new Grade A office supply in 2020, CBRE Research opines that average Grade A (core CBD) rents have peaked and are expected to remain stable in 2020.
• Consumption growth will continue to weaken in 2020, with the entertainment, services and F&B sectors likely be the hardest hit. Department stores and the fashion segments will also suffer. Nonetheless, domestic spending is still expected to provide the source of resilience, with supermarkets, convenience stores and medical goods doing well. E-commerce is also expected to increase.
• Supply pipeline in 2020 is expected to drop significantly to 0.28 million square feet. The limited future supply will commensurate with the lower level of demand. Consolidation activity is also expected to persist as retailers continue to re-evaluate their store performance. CBRE Press Release • CBRE Research forecasts a dip of up to 2% of prime floor island
• CBRE Research forecasts a dip of up to 2% of prime floor islandwide rents in 2020 with more pressure on secondary malls and floors – resulting in a further widening gap between the prime and secondary malls/floors.
• Moving forward, there will be growing pressure for landlords to maintain rents and occupancy for their portfolio. Retailers can also re-strategise and explore new formats this year, leveraging technology to build on their omni-channel strategies while enhancing their last-mile delivery and fulfilment capabilities.
• There will be about 40 projects scheduled for launch in 2020. In addition to the unsold inventory of 30,473 units, 2020 will be a buyer’s market. Projects with a key differentiation in location, developer reputation and pricing will do well.
• Buyers will continue to be price sensitive in the year ahead. CBRE Research believes that the price quantum of S$2 million per unit will continue to be the sweet spot for investors. Homes sizes will be compromised to keep the absolute quantum palatable for buyers.
• Prices are expected to stabilize and could achieve between 0% and 1% growth in 2020. New home sales are forecast to fall within the range of 7,000 to 8,000 units which will remain the underlying demand of the markets. Resale volume is expected to fall within the range of 6,000 to 7,000 units.
• New supply per annum from 2020 to 2023 is estimated at 1.53 million square feet, significantly lower than the historical 10-year average of 4.42 million square feet from 2010 to 2019.
• The subdued supply pipeline could lend some support to occupancy and provide respite for the market to absorb the leftover supply from previous years of saturated levels. Nonetheless, vacancy is anticipated to hover around the region of 12%, as majority of the existing vacant stock comprises older buildings with lower specifications.
• In 2020, demand is expected to be driven by third-party logistics, e-commerce and chemicals sectors with continued tailwinds from the pharmaceutical sector. Prime logistic rents are forecasted to stay flat at S$1.34 per square foot per month.
• Investments will be led by Singapore-focused close-ended real estate funds. The lack of investible quality assets might create challenges in deploying capital, which may result in fewer large-sized transactions. With rental growth slowing, investors will also have to contend with lower yields.
• Foreign capital flowing into Singapore as a proportion of total capital increased to 30.5% in 2019 from 24.3% in 2018, with demand primarily from foreign domiciled funds. This reflects Singapore’s attractiveness as an investment destination. Since punitive measures were meted out in the residential sector, investor attention has shifted to strata offices as well as commercial shophouses, given their palatable prices.
• Rents are likely to peak even as investors face greater pressure to invest, resulting in yield compression for office, retail and hospitality assets. Due to a dearth of investible assets, investment volume is forecast to come in around 20% to 30% lower than the S$18.23 billion recorded in 2019.
For the full Real Estate Market Outlook 2020 – Singapore, please visit: https://www.cbre.com.sg/2020VistionSingapore.