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PROPERTY INSIGHTS
Cautiously optimistic
Singapore Quarter 1, 2012
Market Overview
Despite a slight improvement in sentiment in Q1
2012 as the European Central Bank stepped in to
ease the eurozone debt crisis and there were some
signs of improvement in the US economy, investors
and home buyers remain mindful of global economic
uncertainties, rising business costs and a weaker
property market.
Secondary home sales in Q1 were significantly
lower compared to 2011 while resale prices of non-
landed private homes continued to weaken, with
luxury and freehold condominiums in the prime
districts of 9, 10 and 11 faring the worst. Primary home
sales, however, remained strong and averaged more
than 2,000 units a month in January and February
due to investor interest in small affordable units
coupled with incentives from developers that helped
to offset the Additional Buyer’s Stamp Duty (ABSD)
measures (Figure 1).
Retail rents in Orchard/Scotts Road area fell
by 0.2% quarter-on-quarter (q-o-q) in Q1 and are
expected to ease further in light of new pipeline
supply and government measures restricting the flow
of foreign labour which will affect retailers’ capacity
to expand operations and take up new space.
Purchase demand for uncompleted suburban
homes is expected to remain healthy against the
backdrop of low interest rates. Real estate investments
and commercial rents could also prove to be more
resilient than expected if the economy bottoms out
in Q1 and picks up in H2 2012 in accordance with
economists’ projections.
Source: URA REALIS, 30 Mar, DTZ Research
Trends & Updates
Economic OverviewFollowing a blistering 14.8% growth in 2010, the
Singapore economy slowed down to a growth of
4.9% for the whole of 2011, dragged down by q-o-q
contractions in Q2 2011 and Q4 2011 as weak global
demand affected the manufacturing sector (Figure 2).
However, as the eurozone financial tension has
eased in Q1 2012 and the US economy has shown
some signs of improvement, the manufacturing
sector has exhibited nascent signs of recovery.
Most private sector economists expect the
Singapore economy to bottom out in Q1 and pick
up in H2. Nevertheless, challenges lie ahead with
expectations of a eurozone recession, weak US
recovery, slower growth in Asia and high oil prices.
The Ministry of Trade and Industry (MTI) in February
maintained its 2012 economic growth forecast of
1-3% as it expects the global economic outlook to
be subdued.
The overall unemployment rate fell to a 14-year
low of 2.0% in 2011 while interest rates remained low
and inflation high, a combination which continued to
fuel purchase demand in the property market (Figure
3). The 3-month SIBOR stood unchanged at a low of
0.38% in March.
The consumer price index (CPI) rose by 4.7% year-
on-year (y-o-y) in January-February 2012, down from
5.2% for the whole of 2011. Core inflation (excludes
private transport and accommodation costs) however
rose 3.2% in the same period compared to 2.2% in
2011. Inflation is expected to remain high, as the
government’s measures to limit the inflow of foreign
labour may lead to rising wages.
The Singapore Budget 2012 reiterated the
government’s focus to restructure the economy and
achieve productivity growth by reducing dependence
on foreign workers. The work permit dependency
ratio ceilings (DRCs) for the manufacturing and
service sectors will be lowered from July 2012, along
with the S Pass Sub-DRC (sub-quota of S Pass holders
a company can employ) for all sectors. The man-year
entitlement quota for the construction sector will be
reduced too.
Given the high inflation rate, most economists
expect the Monetary Authority of Singapore (MAS)
to maintain its policy stance in allowing the SGD
to appreciate at a modest and gradual pace in its
April review.
Source: MTI
Source: MAS, MOM
Residential
The private residential market saw mixed
performance as home buyers remain cautious of
the global economy taking a turn for the worse.
Despite the December 2011 ABSD measures,
primary home sales averaged 2,143 units per
month in January and February 2012, higher than
the 2011 monthly average sales of 1,364 units
(Figure 4). This strong showing was however
not widespread and was driven mainly by a few
popular projects such as The Hillier, Watertown,
Parc Rosewood and Guillemard Edge, which
contributed to more than half of the units sold in
January and February (Table 1).
In contrast, secondary home sales slowed to
about 500 units per month in January and February
2012, significantly lower than the monthly average
of about 1,400 units in 2011.
Resale prices of non-landed private homes
continued to weaken in Q1. Luxury and freehold
condominiums in the prime districts of 9, 10 and
11 fared the worst, with resale prices declining by
0.8% and 0.7% q-o-q respectively, affected by the
ABSD of 10% for foreigners, higher price quantum
and competition from newly completed projects.
Although resale prices of leasehold condominiums
in the suburban areas registered a slight q-o-q
increase of 0.3%, this is a moderation from the
1.0% growth in Q4 2011 (Figure 5).
A higher proportion of local buyers is expected
to dominate the market going forward as foreigners
take time to adjust to the 10% buyer’s stamp duty
they now have to pay. This will have a greater
dampening effect on sales volume and prices in the
prime areas.
Source: URA REALIS, 30 March, DTZ Research
Figure 4
Primary and secondary home sales (excluding ECs)
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan
10
Mar
10
May
10
Ju
l 10
Sep
10
No
v 10
Jan
11
Mar
11
May
11
Ju
l 11
Sep
11
No
v 11
Jan
12
Primary sales Secondary salesUnits launched
Source: URA, DTZ Research
Figure 5
Average non-landed resale capital value index
Source: DTZ Research
60708090
100110120
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Luxury Prime FreeholdSuburban Leasehold
Capital value index
URA announced in a circular on 3 April 2012
that it will no longer accord condominium status
to developments with a mix of strata landed units
and apartments. The new guidelines take effect
for development applications submitted after 3
April. Although these are popular with foreigners
who are not eligible to purchase landed homes,
the impact is likely to be minimal as strata landed
homes usually make up only a small percentage of
such developments.
Purchase demand for uncompleted suburban
developments is expected to remain healthy with
low interest rates and high inflation. Projects that
were launched previously are being re-launched to
ride on the current buying momentum. If purchase
demand continues to remain strong at above 1,500
units a month, we do not preclude the possibility of
further government cooling measures.
RetailAgainst the backdrop of a less optimistic
macroeconomic outlook, the average gross fixed
rent of prime first-storey retail space in Orchard/
Scotts Road fell by 0.2% q-o-q to $40.10 per sq ft
per month in Q1 2012 while that of other city areas
fell by a larger 0.6% to $23.90. Prime retail space in
the suburban areas fared better with average rents
holding at $33.70.
Although rents in Orchard/Scotts Road showed
some weakness, some landlords remain selective
in picking tenants in a bid to reconfigure their
tenant mix to attract back shoppers. Landlords
are now keener to differentiate with new concepts
and tenants rather than stick to tried-and-tested
ones that have resulted in cookie-cutter shopping
centres especially in the suburban areas. With more
supply in the pipeline, it will be more challenging
for landlords to find the right formula to attract and
sustain retail spending.
Retail rents in Orchard/Scotts Road are expected
to continue to ease particularly in light of new
supply coming from the conversion of offices to
retail space at the Atrium@Orchard in 2012 and the
completion of orchardgateway and redevelopment
of 268 Orchard Road (former Yen San Building) in
2013. These projects are expected to add around
431,000 sq ft of net lettable area (NLA), which
account for 5% of the current existing stock in the
prime retail belt (Figure 6 and Table 2).
On the demand side, retailers along the Orchard/
Scotts Road belt in particular will be affected
by a moderation in tourist arrivals. In view of the
Demand for office space slowed down in Q1 as office
occupiers remained wary of market uncertainties,
taking up space only on a need-to basis and avoided
pre-committing for future spatial needs.
Leasing transactions in Q1 were limited to small
and mid-sized tenancies as most companies in need
of space chose to renew their leases or expand within
the same building to avoid capital outlay and moving
costs.
Nevertheless, pockets of new demand were noted
from companies venturing into the growing South
East Asian markets and looking to set up offices in
Singapore.
While the average gross face rent for prime
office space in Raffles Place stood at $9.80 per sq
ft per month in Q1, the rental market is noted to
have become more competitive with lower effective
rents as landlords are more ready to offer leasing
incentives in the form of longer rent holidays
ranging between two and six months.
Taking into consideration about 600,000 sq
ft of office space to be terminated in 2012, the net
increase in office space this year is estimated to be
only about 1.1 million sq ft (Figure 8).
The increase in shadow space however
underscores a looming pressure on office occupancy
rates and rents. Shadow space is excess space that
companies have leased but are looking to assign
and sublet. Islandwide office shadow space grew by
about 15.0% q-o-q to approximately 215,000 sq ft in
Q1, almost half of which can be found in the Raffles
Place area. The average office occupancy rate of
91.3% in Raffles Place would have fallen to 90% if
we account for the shadow space.
Offices
uncertainty in the global economy, the Singapore
Tourism Board (STB) expects total visitor arrivals to
grow by a slower 2-10% y-o-y in 2012, after rising
13.1% last year.
Retailers are also facing a tighter labour market
because of government policies implemented to
tighten the inflow of foreign labour. This may restrict
their capacity to expand operations and take up
new space. Beside labour constraints, retailers have
to contend with higher oil prices, which may affect
cost of goods and profitability.
Going forward, prime first-storey retail rents
in Orchard/Scotts Road are projected to fall by
2-4% in 2012-2013 (Figure 7). However, the sector
could prove to be more resilient if there is a pickup
in economic activity later in the year and tourist
arrivals grow more strongly than expected.
Figure 7
Source: DTZ Research
80
85
90
95
100
105
110
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Rental index
Figure 8
Office development pipeline including projects on awarded GLS sites
Source: URA, DTZ Research
-1,000-500
0500
1,0001,500
2,0002,5003,0003,5004,000
20
12
20
13
20
14
20
15
20
16CBD CBD Fringe/Orchard Road Decentralised Termination
sq ft (000s)
Despite a slight improvement in sentiment due to
the easing of the liquidity crunch in the eurozone this
quarter, demand for office space could fall to below
1 million sq ft for the whole of 2012 as occupiers
are likely to remain cautious as they brace for
uncertainties and rising costs. The growth in shadow
space and the upcoming completion of large scale
projects such as The Metropolis and Asia Square
Tower 2 in 2013 will further tip the demand-supply
balance, putting downward pressure on office rents
(Table 3 and Figure 9).
Average office gross rental index in Raffles Place
Table 3
Major upcoming office projects
Name of developmentEst NLA(sq ft)
Est TOPyear
The Metropolis 1,000,000 2013
Asia Square Tower 2 789,000 2013
Jem 315,000 2013
CapitaGreen 720,000 2014
Paya Lebar Square 430,000 2014
Source: URA, DTZ Research
GENERAL DISCLOSURE
Disclaimer - DTZ Research
This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional
advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of
any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced
or referred to without prior approval. Any such reproduction should be credited to DTZ.
© DTZ April 2012
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