Steady outlook for Singapore property market

January 20, 2020 / By  

After riding through turbulence in 2019, Singapore’s property market is expected to hold steady in 2020 and could surprise on the upside should the economy outperform.

Global liquidity, investors’ strong interest in Asian real estate and Singapore’s reputation as a safe haven should see the investment sales market maintaining its buoyancy in 2020. Office assets are likely to remain investors’ hot favourite, although sales volume could be weighed down by the lack of sizeable trading stock, following the conclusion of several prominent deals in 2019. These include the billion-dollar Duo Tower and Duo Galleria as well as the Chevron House transactions.

While developers’ appetite for residential development land in the collective sales market is likely to stay subdued as they focus their efforts on clearing their unsold inventories, Singapore’s prime home market is expected to remain attractive to regional investors looking for defensive assets. Meanwhile, investors’ interest in retail and industrial assets will stay selective.

Figure 1: Year-on-Year Change in Rents and Capital Values in 2019

Source : JLL Research

The outlook for the leasing market is more tentative as occupiers’ sentiment is more sensitive to economic uncertainties.

Grade A CBD rent growth slowed to a brake in 4Q19 as resistance to rent hike intensified and market exuberance abated following the plunge in GDP growth in 2Q19. Lingering uncertainties around Brexit and the U.S.-China trade war are threats to economic recovery in 2020. This will keep office occupiers cautious and sensitive to rent increase. The scheduled completion of three new projects with average pre-commitment rate standing at below 50% as of 4Q19 will add weight to rents. On a brighter note, there are prospects for CBD Grade A rents to post marginal uptick towards the end of 2020 should Singapore’s economy firm up and lend support to business confidence.

Retail and logistics rents have likely bottomed and could hold relatively stable in 2020. Nonetheless, their recoveries remain fragile. Retailers and mall landlords will have to keep learning the art of new retailing and continuously update their offerings to cater to modern-day consumers with fleeting attention and interests. Meanwhile, the logistics sector remains exposed to the threat of a full-blown trade war between the U.S. and China.

Prime residential rents inched up in 2019 in spite of economic uncertainties. They should stay firm in 2020, underpinned by tight vacancy amid low supply of completed housing units in the short term.

The business park sector stands out as one whose 2020 rental growth we are most confident about. Demand for good quality space in popular parks was robust even amid economic headwinds in 2019. The burgeoning digital economy will continue to drive demand for business park spaces by qualifying firms in the media and technology industries. While new supply could surge in 2020, five out of the seven projects scheduled for completion in the year are purpose-built, thus limiting oversupply risk. The sound demand and supply fundamentals place the sector in a good position to continue to enjoy moderate rent growth in 2020, barring adverse economic shocks.

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