PROPERTY INSIGHTS Q2 Snapshot

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1 PROPERTY INSIGHTS Singapore Quarter 2, Q2 Snapshot Residential market bottoming out The residential land bids are heating up and more private developments are considering collective sales. Is the residential market on track to recover? Based on advanced estimates by the Ministry of Trade and Industry, Singapore s GDP grew by 2.5% y-o-y. This expansion was supported by growth in the electronics and precision engineering clusters. While the external environment remains uncertain, Singapore s economic growth is expected to exceed the 2% growth in Prices for luxury apartments and non-landed homes in prime districts remained flat q-o-q. Private home sales increased 34.6% to 7,000 transactions over the same period. Rents for non-landed homes in non-prime districts declined by 0.5% q-o-q due to the slowing rental demand and the increase in the number of completions in non-prime districts. Gross rents of first-storey space in suburban areas eased by 0.5% q-o-q to $30.45 per sq ft per month after keeping constant for the past two consecutive quarters. On the other hand, prime first-storey monthly rents of retail space in the other city areas and Orchard/Scotts Road stayed firm at around $19.75 and $37.20 per sq ft respectively. Rents in the CBD eased by 0.8% q-o-q to around $8.79 per sq ft per month in, compared to a 1.2% decline in Q Monthly gross rents for offices in Raffles Place and Marina Bay declined moderately by 0.5% q-o-q to $9.60 and around $10.53 per sq ft per month respectively. Investment sales rose to $7.9 bn from $4.2bn in Q Residential investment sales accounted for about 34% of investment sales in Singapore, as more developments go up for collective sale and land bidding becomes more competitive.

2 Trends & Updates Economic Overview Singapore s economy grew by 2.5% y-o-y. Factory activity rose for the tenth straight month, with the PMI posting a reading of Firms in the services sector had mixed sentiments for the period of April 2017 September 2017, depending on the industry they were in. Market Commentary The Singapore economy expanded by 2.5% y-o-y in Q2, supported by growth in manufacturing (Figure 1). The manufacturing sector grew by 8.0% y-o-y, as the electronics and precision engineering clusters registered robust expansions. The manufacturing sector maintained its growth momentum, with Singapore s purchasing managers index (PMI) remaining above the 50-point mark for the tenth straight month since September The electronics sector was the driving force behind this growth. The PMI increased marginally by 0.1-points over the previous month to 50.9 in June 2017 (Figure 2). This increase was attributed to higher new orders and exports, inventory and factory output despite employment in the industry contracting. The performance for non-oil domestic exports (NODX) has weakened since April Figure 1 GDP growth 5% 4% 3% 2% 1% 0% -1% Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 GDP growth (y-o-y) (LHS) GDP at 2010 prices (SA) (RHS) Q4 15 Source: MTI, Edmund Tie & Company Research Figure 2 PMI and NODX Sep-15 Dec-15 PMI (LHS) Mar-16 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 * GDP growth (q-o-q) (LHS) Note: NODX for June 2017 was not released as of time of publication Source: IE Singapore, SIPMM, Edmund Tie & Company Research Jun-16 Sep-16 Dec-16 Mar-17 NODX growth (y-o-y) (RHS) Jun-17 S$b % 20% 0% -20% -40% Sentiments in the service sector was mixed, with half of the industries having a positive outlook and the other half being more pessimistic (Figure 3). Retail trade, food and beverage services and transport & storage were among the top three most pessimistic industries in terms of their business outlook for the period April to September Despite the optimism in the property sector, the external risks looming at the back drop continue to weigh on the economy. Figure 3 Sentiments of Service Sectors April September 2017 Recreation, Community & Personal Services Business Services (Excluding Real Estate) Real Estate Financial & Insurance Information & Communications Food and Beverage Services Accomodation Transport & Storage Retail Trade Wholesale Trade Source: EDB, Edmund Tie & Company Research

3 Outlook Singapore s economic growth in H largely relied on the strong performance from the electronic sector. However, there are concerns that the competitive telecommunications sector, as well as the export-oriented sectors may slow down. The external environment remains uncertain and is likely to weigh on any growth. Residential Figure 4 Home Sales (excluding executive condominiums) Private home sales increased by 34.6% q-o-q to 7,000 units, with secondary sales rising significantly by 74.6% q-o-q to 3,911 units. The price of luxury apartments and non-landed homes in prime districts and non-prime districts remained flat. Rents for non-landed homes in non-prime districts fell by 0.5% q-o-q, whereas rents of luxury apartments and non-landed homes in prime districts stayed unchanged. Market Commentary Private home sales rose by 34.6% q-o-q to 7,000 units in (Figure 4). The secondary sales market was the main driving force, as transaction volume went up by 74.6% q-o-q to 3,911 units. Districts 19, 14 and 15, which are outside the prime and emerging districts, had the highest number of secondary sales at 527, 481 and 340 homes respectively. This increase coincided with the improvement of sentiments after the relaxation of some property curbs in Q The primary market continued to perform, with sales increasing by 4.3% q-o-q to 3,911 units. 6,000 4,000 2,000 0 Q Q Q Sold directly by developers Q Q Q * Sold in secondary market Source: URA, Edmund Tie & Company Research Note: Units sold in is based on caveats lodged in the quarter, as at 10 July Figure 5 Resale Non-Landed Residential Price Index (Q1 2011=100) Q Q Source: Edmund Tie & Company Research Suburban leasehold Prime freehold Luxury Prices of non-landed residential properties remained flat in (Figure 5), which were supported by an improvement in sentiments, which were reinforced by bullish land bids and higher take-up rates of recent launches. Rents of non-landed homes in suburban districts eased 0.5% q-o-q (Figure 6). The high vacancy rate, which was at 9.1% as at Q1 2017, along with weaker demand from expatriate workers, continued to exert downward pressure on rents. However, the transacted rents of some choice developments at prime district stayed resilient. Figure 6 Monthly rents for Non-landed homes in non-prime districts ($) $ pm 4,500 3,500 2,500 1,500 Q Q Q Q bedroom Q Source: Edmund Tie & Company Research Q Q bedroom

4 Outlook The increase of sales in and a smaller inventory of unsold units suggests that the residential market has bottomed out. However, the uncertain global economic environment continues to loom. Interest rate hikes by the Federal Reserve and geopolitical tensions are likely to weigh down sentiments, but are expected to be limited in terms of impact. We also anticipate projects in established neighbourhoods close to transportation nodes and amenities to remain popular. Strong take-up rates of these launches will spill over to the properties in the vicinity. Rents for non-landed properties in non-prime districts are expected to remain subdued as the supply of homes are anticipated to increase. Notwithstanding the supply issue, rents of choice developments in prime districts and growth clusters are likely to remain resilient. Investment Investment sales rose to $7.9bn in Q2 from $4.2bn in Q1. Residential investment sales doubled to $2.6bn due to the award of the land parcel at Stirling Road and the enbloc sales. Retail investment sales reached $2.2bn in Q2 with the sale of Jurong Point to Mercatus Co-operative. Market Commentary Investment sales reached $7.9bn in, exceeding the amount recorded in (Figure 7). The largest sale in Q2 was the sale of Jurong Point by Lee Kim Tah Holdings and Guthrie GTS to Mercatus Co-operative. The mall has 658,000 sq ft of commercial net lettable area, and the price is translated to $3,343 per sq ft of Net Lettable Area. Figure 7 Investment sales (S$ m) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Q1 Q2 Q3 Q4 Source: Edmund Tie and Company Research Figure 8 Investment sales (S$ m) Residential investment sales accounted for about 34% of total investment sales in Q2 (Figure 8). The second and third largest deals were from the Government Land Sales Programme, each deal Mixed 22% Residential 34% amounting to more than $1bn. The first land parcel sold in the state tender was a 99-year leasehold mixed commercial and residential site in Bidadari estate. Singapore Press Holdings (SPH) and Kajima Development placed the highest bid at $1.132bn, which translates to $1,181 per sq ft per plot ratio (Table 1). There were 12 bids in total. Retail 28% Industrial 4% Office 12% The land parcel at Stirling Road was also awarded at slightly above $1.0bn to China-based developers Source: Edmund Tie and Company Research

5 Logan Property and Nanshan Group. The bid translates to a price of $1,050 per sq ft per plot ratio, and prices for the project is expected to be above $1,700 per sq ft. This land parcel was in the Reserve List, and it was triggered for tender after a developer committed to bid at no less than $685.25m. The competitive land bidding also spilled over to the private market as the collective sale market remained active. Eunosville, a privatised HUDC estate, was sold for $765m to MCL Land. The site could make way for as many as 1,399 units. This is also the fourth en bloc sale in Anecdotally, it is estimated that there are currently about 20 to 25 developments that have appointed marketing agents for collective sale. Outlook Investment sales are expected to grow further, buoyed by government land sales and collective sales. The state tenders are expected to remain competitive, and more land parcels in the Reserve List may be triggered. The land parcel at Beach Road was the latest to be triggered, after a developer committed to bid at a price of not less than $1.138bn. Based on recent land bids, the winning bid is likely to be above $1,500 per sq ft per plot ratio, or $1.43bn. With the cost of borrowing remaining low, total investment sales is expected to reach above $20bn by end Table 1 Major Investment Sales in Development/ Site Maximum Permissible Area (unless stated otherwise) Use Price ($)/($ psf) Buyer Jurong Point 761,000 sq ft Commercial 2.2bn (3,343) Mercatus Co-operative Upper Serangoon GLS 958,458 sq ft Residential 1.13bn (1,181) Singapore Press Holdings and Kajima Development Stirling Road GLS 953,905 sq ft Residential 1.0bn (1,050) Logan Property and Nanshan Group Source: Edmund Tie & Company Research Retail Gross rents of prime first-storey retail space in Orchard/Scotts Road remained constant at $37.20 per sq ft per month. Similarly, monthly gross rents of retail space in the other city areas stayed firm at around $19.75 per sq ft. Figure 9 Retail rental indices of prime first-storey space (Q1 2011=100) On the other hand, there was a decline in retail rents 80 in the suburban areas, falling by 0.5% q-o-q to $30.45 per sq ft per month. Q Q Q Q Q Q Q Market Commentary Monthly gross rents of islandwide prime first-storey Orchard/Scotts Road Other city areas Suburban areas Source: Edmund Tie and Company Research retail space fell by 0.2% q-o-q to around $29.15 per sq ft (Figure 9). While the decline in rents continued to

6 moderate, retailers sentiments were depressed due to concerns over competition from e-commerce portals and overseas markets. In, first-storey retail rents in the suburban malls eased by 0.5% q-o-q to $30.45 per sq ft per month, which came at the back of occupancy rates falling by 0.3 percentage points q-o-q to 90.9% and net absorption falling to -22,000 sq ft in Q On the other hand, prime first-storey retail rents in the other city areas remained unchanged at around $19.75 per sq ft per month after eight consecutive quarters of decline since. Similarly, monthly gross rents of prime first-storey space in Orchard/Scotts Road stayed firm at $37.20 per sq ft for the fourth consecutive quarter. Apart from limited pipeline supply of 85,000 sq ft in the area from to 2021, the resilience of retail rents was due to an increase in retail sales and visitor arrivals to Singapore. Outlook On the supply side, from to 2021, there will be around 3.3m sq ft of retail space slated for completion, with the majority (2.2m sq ft) in the suburban areas (Figure 10). The bulk of the pipeline supply is expected to complete in 2018 and With retailers and malls facing structural challenges, it is likely that the malls to offer more pop-up stores to create new experiential concepts. Local retailers, Figure 10 Retail development pipeline including projects on awarded GLS sites, sq ft (million) Q2-Q Orchard/Scotts Road Other City Areas Suburban Areas Source : URA, Edmund Tie & Company Research particularly so for the start-ups, will require affordable spaces, through shorter leases, to experiment concepts and hone designs. The use of pop-up stores will serve as a solution where everyone benefits. While landlords can freshen their tenant mix, the local retailers can also reach out to a larger crowd in established shopping areas. For some, they may even sign on longer leases after they have established their brands. Examples of which included Keepers (permanent store at National Design Centre) and Naiise (permanent stores at various locations including Orchard Gateway and Westgate). Office Office rents in the CBD eased by 0.8% q-o-q to around $8.80 per sq ft per month. Monthly office rents in Marina Bay eased by 0.5% q-o-q to about $10.50 per sq ft. Gross rents of Grade B offices in the Shenton Way/Robinson Road/Cecil Street/Anson Road/Tanjong Pagar subzone fell by 1.6% q-o-q to around $6.25 per sq ft per month, while monthly rents of Grade A buildings in Raffles Place dropped by 0.5% q-o-q to $9.60 per sq ft. Figure 11 Office rental indices (Q1 2011=100) Q Q Q Q Raffles Place (Grade A) Q Source : Edmund Tie & Company Research Q Q Shenton Way/Robinson Rd/Cecil St/Anson Road/Tanjong Pagar (Grade B)

7 Market Commentary Office rents in the CBD eased by 0.8% q-o-q in Q2 2017, a moderate decline compared to a 1.2% drop in Q (Figure 11). While the moderation of rents in the CBD suggests that the office market is on track of bottoming out, they remained under pressure from the uncommitted upcoming supply and moderate growth of the business services and finance sectors, which expanded marginally by 0.3% and 0.1% respectively y-o-y, according to the Ministry of Trade and Industry. In the CBD, office rents in Marina Bay and Raffles Place (Grade A) buildings eased by 0.5% q-o-q to $10.53 and $9.60 per sq ft per month respectively in. Rents for these premium and Grade A offices faced less pressure to decline further, as more of such spaces were taken up. The asking rents of smaller office units held up very well. For instance, the asking rents of smaller units (below 6,000 sq ft) of Asia Square Tower 1 in Marina Bay ranged from $9.80 to $14.00 per sq ft per month, depending on the floor level and orientation. Additionally, the space vacated by Google in Asia Square Tower 1 is being progressively taken up. The new tenants there include CTBC Bank (29th floor), PIMCO Asia (30th floor) and FIS systems (31st floor). Monthly rents of Grade B offices at Shenton Way / Robinson Road / Cecil Street / Anson Road / Tanjong Pagar continued to trend downwards at 1.6% q-o-q to around $6.25 per month in, after a 1.9% decline in Q The offices in this subzone continued to come under pressure from flight to quality, where tenants seek higher quality buildings with more efficient floor plates. These tenants would have more options considering upcoming Grade A office developments like Frasers and Robinson Towers completing in Outlook Despite about 2.2m sq ft of office space coming on board the CBD by end 2017 (Figure 12) and around 138,000 sq ft of current shadow space in the area Figure 12 Office development pipeline including projects on awarded GLS sites, sq ft (million) Source : URA, Edmund Tie & Company Research Table 2 Current shadow space and future vacant space as at Marina Bay Raffles Place Q2-Q Termination CBD City Fringe Decentralised areas Subzone Shenton Way/Robinson Road/ Cecil Street/Anson Road/ Tanjong Pagar Source: Edmund Tie & Company Research Estimated Current Shadow Space (sq ft) 68,000 28,000 42,000 Estimated Future Vacant Space (sq ft) 40, , ,000 (Table 2), the outlook has improved as more tenants have progressively committed to upcoming developments. Moving forward, the use of office space is evolving with an increasing demand for collaborative spaces and meeting areas. To increase the number of meeting rooms, rooms of senior management may be converted to collaborative spaces when the senior executive officers are not in office. Additionally, movable partitions are installed in meeting rooms to suit the diverse sizes of meeting groups.

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