Singapore property investments to surpass USD 30 billion in 2022: Reports

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Anshul Jain, Managing Director, India and Southeast Asia at Cushman & Wakefield

With Singapore’s economy in a position of strength, being forecasted to surpass pre-pandemic average annual growth numbers by growing 3.8% year-on-year in 2022, Cushman & Wakefield’s latest Singapore Market Outlook H2 2022 report expects the overall Singapore property market to see relatively strong but slower growth as investors seek out safe havens for wealth preservation and diversification amidst global uncertainties.

“Singapore starts from a position of strength and economic indicators reflect growth and stability. Consumer spending remains robust and is expected to grow as inbound tourism recovers, while the labour market is staying healthy with low unemployment rates and recovering wage growth. The high levels of fixed asset investments into Singapore in 2020 and 2021 also suggest that Singapore could benefit from a flight to safety as capital gravitates towards ‘safe havens’,” said Anshul Jain, Managing Director, India and Southeast Asia at Cushman & Wakefield. “Against this backdrop, we still see relatively strong growth for the overall Singapore property market in H2 2022, albeit at a slower pace.”

“Assuming interest rates remain high into 2023, property demand is expected to slow as companies adjust to the impact of these higher rates. However, we remain sanguine that the property market in Singapore could see resilience given current tight supply conditions across the board. Property rents and prices for grade A offices and prime logistics are still expected to see inflation-driven growth, and repricing opportunities for these could be limited as asset owners’ holding power remains strong. Rents are largely still expected to grow and
support capital values,” said Wong Xian Yang, Head of Research, Singapore at Cushman & Wakefield. “Nonetheless, if interest rates remain high into 2023, transaction volumes could cool as the expectation gap between buyers and sellers widens.”

Office
The Singapore office market remains on an uptrend, supported by the return-to-office momentum and pick-up in business activities. CBD Grade A and Grade B office rents are poised to grow by 5.4% and 2.7% y-o-y respectively for the whole of 2022 amidst a tight supply situation, while decentralised office rents are expected to grow 3.2% y-o-y for 2022. Rental growth could slow in 2023 as occupiers become more cautious and some struggle to adapt to higher interest rates.

Overall, office demand remains positive with CBD Grade A office vacancy rates expected to tighten towards 4.5% by end-2022. Vacancy rates are expected to rise in 2023, with increased supply due to the expected completion of Central Boulevard Towers. However, future supply remains tight with a limited CBD Grade A office supply pipeline and programmes like the CBD incentive scheme possibly prompting more
redevelopments.

Industrial
Rent growth is expected to continue across the industrial market in 2022 as Singapore’s economic reopening and stable growth continues to drive demand. Overall, industrial vacancy rates have tightened to around 10.2% in Q1 2022 compared to 10.8% in Q4 2019.

Fit-for-purpose assets which can capture demand from prevailing megatrends such as e-commerce, business digitalisation and life science growth will continue to see higher demand and rental growth. Given current supply chain disruptions, stockpiling demand will persist but may fade slightly towards 2023 as supply chains adjust and consumer spending diverts from goods to services. Conventional factories and outlying business parks will see slower rental growth due to muted demand as occupiers seek newer developments with better
specs and amenities. Average annual rental growth rates are expected to be 3.2% and 2.1% y-o-y for the industrial market in 2022 and 2023, with stronger growth prospects for new economy assets.

Retail
Prime retail rents have started recovering in 2022 due to improved pandemic sentiment and border reopening. Demand for retail spaces is supported by improving total retail sales that grew by 9.3% as of May 2022 YTD, with only 14.9% contributed by online retail sales. Prime retail rents are expected to climb 2%-4% y-o-y in 2022, led by the Suburban and Orchard retail markets. Limited new supply will help support rents with new island-wide retail supply only coming up to 0.3 msf per annum from 2022 to 2026.

Despite recovering footfalls, retailers still face challenging operating conditions, especially those in the Food & Beverage (F&B) sector, -a key demand driver of the retail market. Sales of retailers could be impacted by higher operating costs due to manpower shortages, persistent inflationary pressures and food supply disruptions. While the reopening of borders would divert some consumer spending overseas, offsetting some of the gains due to higher inbound tourism.

Private Residential
Private residential sale volumes slowed at the start of the year as buyers adjusted to newly introduced cooling measures amid a dearth of major launches. However, market has slowly adapted to the cooling measures and demand is returning as evidenced by strong sales achieved at the new launches of 407-unit Piccadilly Grand and 298-unit LIV @ MB in May. Thus, sales volumes increased in Q2 2022 by almost 28% q-o-q. Given a limited launch pipeline, new sales volumes for 2022 are forecast to reach 9,000-10,000 units while resale
volumes can reach 13,000-14,000 units.

Private residential prices are trending higher due to a tight labour market, rising rents and continued local preference for private property ownership as well as heightened construction costs and low unsold inventories. For the whole of 2022, private residential prices in Outside Central Region and Rest of Central Region are expected to increase by 5%-7% while Core Central Region prices could inch up by 2%-3%.

Investment
Capital continues to flow into the Singapore real estate market with total investment sales reaching USD19.1 billion during the first half of 2022. Barring a significant deterioration in the global economy, 2022’s investment sales volume is poised to reach a three-year high as investors seek to deploy capital into safe-haven assets amidst rising inflation. Office investment sales are dominating total investment volumes while developers continue to show a healthy appetite for residential development sites given rising prices and rents. Industrial deals remain held back by limited institutional-grade industrial stock for sale and government regulations, though we
anticipate increasing investment volumes.

There has been little evidence of asset repricing even as interest rates and inflation rise. The weight of capital may keep real estate asset yields stable in H2 2022, but overall transaction volumes could slow in 2023 as buyer-seller price gap expectations widen. With limited repricing opportunities over the short-term horizon, investors with available liquid funds who are willing to take on development risk could reap significant first-mover advantages in the future, especially when capital requirements for development are higher due to rising
interest rates and inflation.

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