PROPERTY INSIGHTS. Market Overview. Increase in residential sales amid weaker market in Singapore Quarter 4, 2015

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1 PROPERTY INSIGHTS Singapore Quarter 4, 215 Increase in residential sales amid weaker market in 215 Market Overview Property investment sales in Singapore in Q4 were boosted by the Government Land Sales Programme, which rose by 46% q-o-q to $4.8bn. Notwithstanding, investment sales in 215 declined by 9.3% to $16bn, as there was a mismatch in price expectations between buyers and sellers. The number of homes sold in 215 has increased by 1.7% y-o-y to 14,29 transactions as private homes become more affordable (Figure 1). For the whole of 215, resale prices for landed and non-landed properties dipped by 3.7% and 3.5% y-o-y respectively. It is anticipated that home prices in 216 will continue to slide due to weaker macroeconomic conditions and higher interest rates. Average monthly gross office rents in the CBD declined for the second consecutive quarter in Q4 to $1.15 per sq ft, bringing about a 5.1% decrease for 215. As a result of the uncertain economic outlook, islandwide net demand fell from 1.3 million sq ft in 214 to 534, sq ft in 215. Average islandwide prime first-storey retail rents fell by 1.2% q-o-q and 5.7% y-o-y to about $3.5 per sq ft in Q Amid the challenging operating environment, landlords have become more open to exploring new retail concepts to generate new retail experiences. Nonetheless, the relatively large Figure 1 Home Sales (excluding executive condominiums), units 45, 4, 35, 3, 25, 2, 15, 1, 5, Source: DTZ Research Sold directly by developers Uncompleted units launched , 2, 15, 1, 5, Sold in secondary market impending supply, coupled with uncertainties in the global economy, is expected to exert further downward pressure in rental values in 216. Rents of business parks declined by.4% y-o-y while rents for hi-tech space rose by 1.6% y-o-y in 215. The rental market faced greater pressure in Q4 215 as monthly rents of business parks and hi-tech industrial space fell for the first time since Q3 212, by 2.4% and 1.5% q-o-q to $4.98 per sq ft and $3.25 per sq ft respectively. With 19.7 million sq ft of industrial space completing in 216, rents of industrial space are forecasted to continue falling in 216.

2 Trends & Updates Economic Overview GDP grew by 2.% in Q4 According to advanced estimates by the Ministry of Trade and Industry (MTI), Singapore s GDP registered a better-than-expected growth rate of 2.% y-o-y in Q4 215 (Figure 2). Overall GDP growth was led by improvements in the construction and services producing sectors, which expanded by 2.2% and 3.2% y-o-y respectively. The manufacturing sector declined for the fourth consecutive quarter, contracting by 6.% y-o-y in Q4. Singapore economy grew by 2.1% in 215, which is in line with MTI s earlier forecast of about 2.%. Devaluation of Chinese Yuan hurt exports The non-oil domestic exports (NODX) extended its decline to 7.2% y-o-y in December, due to the 1.3% contraction in non-electronic products led by petrochemicals, primary chemicals, and civil engineering equipment parts. The top three contributors to the NODX decline in December were South Korea, Taiwan and China. In addition, the recent rounds of devaluations in the Chinese Yuan continue to hurt Singapore s domestic exports, on top of the ongoing economic restructuring in the manufacturing sector. Similarly, the manufacturing sector contracted for the sixth consecutive month in December, as the purchasing managers index (PMI) remained below 5 (Figure 3). CPI declined by.8% in November Singapore s Consumer Price Index (CPI) continued to ease, falling by.8% y-o-y in November (Figure 4). Excluding December, Singapore s CPI in 215 decreased by.5%. The overall fall in prices was led by cheaper housing and utilities prices, which declined by 3.5% y-o-y from January to November 215. Despite much anticipation, the property cooling measures were not lifted after the general elections in 215. Coupled with uncertainties in the global economy and subdued investors sentiments, home Figure 2 GDP growth 1% 5% % -5% Q4 213 Q1 214 Q2 214 Source: MTI *Based on advanced estimates Figure 3 Q3 214 GDP growth (y-o-y) Singapore PMI and NODX Oct-214 Nov-214 Dec-214 Jan-215 Feb-215 PMI (LHS) Mar-215 Apr-215 May-215 Source: SIPMM, IE Singapore, DTZ Research Q4 214 Jun-215 Jul-215 Q1 215 Q2 215 Q3 215 GDP growth (q-o-q) Aug-215 Sep-215 Oct-215 Nov-215 Dec-215 NODX growth (y-o-y) (RHS) *Q % 2% % -2% -4% prices trended downwards in 215. According to URA s flash estimates, prices of private residential properties dipped by.5% for the ninth consecutive quarter in Q4, translating to a 3.9% decline in 215 and 8.4% decline since the peak in Q Unemployment rate remained q-o-q at 2.% in Q3 According to the Ministry of Manpower (MOM), overall employment increased by 12,6 q-o-q in Q3 215, which is lower than the 33,4 increase in employment in Q For the first nine months of 215, the employment growth of 16,2 was also the lowest since 29. Notwithstanding, the labour market remained tight with unemployment rate staying at 2.% in Q Sectors that supported employment gains in Q3 were services (13,3),

3 particularly community, social and personal services (5,7), professional services (4,4), financial and insurance (2,6), and information and communications (2,1). Singapore s SkillsFuture Movement To improve skills and employability, the new SkillsFuture Credit Scheme was initiated to equip every Singaporean aged 25 and above with $5 credit for various courses. Also, two new statutory boards will drive and oversee this movement, one of which is the SkillsFuture Singapore (SSG). Residential Residential sales rose by 1.7% to 14, units in 215 Figure 4 CPI, unemployment rate and interbank overnight rate 3% 2% 1% % -1% Q4 213 Q1 214 Q2 214 CPI change (y-o-y) Q3 214 Interbank Overnight Rate Source: MTI, MAS, MOM, DTZ Research Note: CPI figures and Interbank Overnight Rates for Q4 215 are based on October and November. Unemployment figures for Q4 215 are not available yet at the time of publication Figure 5 Q4 214 Q1 215 Q2 215 Q3 215 *Q4 215 Overall unemployment rate Home Sales (excluding executive condominiums), units As home prices become more affordable, market activity picked up in 215. The number of homes transacted in 215 was 14, units, 1.7% higher than the total number of homes sold in 214 (Figure 5). The increase in sales was the first since the Government implemented the TDSR framework in 213. Both the secondary market and primary market saw higher sales in 215. Secondary sales rose by nearly 17% to 6,449 transactions in 215 from 5,518 transactions in 214, as the price gap between buyers and sellers narrowed. 5, 4, 3, 2, 1, Source: URA, 15 January 215, DTZ Research Sold directly by developers Sold in secondary market Uncompleted units launched 25, 2, 15, 1, 5, Likewise, the number of units sold by developers in 215 rose by 6.1% to 7,76 units. Most of these projects are within walking distance to MRT stations, established schools and other amenities. The more popular configuration of the units sold were either two-bedroom dual key units or single bedroom units, as the quantum is more affordable. The trend is expected to continue, judging from sales of new launches in Q Home price declined by 3.5% to 3.7% in 215 Home prices continued to trend downwards in 215, as the weaker economy and lingering effects of the cooling measures continued to exert downward pressure on demand. On average, resale prices for landed and non-landed homes declined by 3.7% and 3.5% for the whole of 215 (Figure 6). Notwithstanding, the decline was more moderated compared to 214. For instance, resale prices for non-landed suburban homes dipped by 4.4% y-o-y in Q4 215, which was less than the 7.6% decline recorded in Q Towards the end of 215, buyers were less concerned with when the cooling measures are lifted as both sellers and developers absorbed part of the stamp duties. Since Q2 213, the resale prices for luxury homes have fallen by 15.%, and resale prices for homes in prime district have fallen by 11.9%. Likewise, suburban leasehold homes saw a 12.6% drop in price in the same period.

4 Moving forward, prices are expected to decrease further by 5% to 1% due to weaker economic growth. External events pertaining to weakening Chinese economy and falling oil prices may curb demand as buyers become more cautious. Notwithstanding, there are more affordable options available for buyers looking for owner occupation. Rents for suburban non-landed homes fell the most by 1.2% in 215 Rents for suburban non-landed homes saw the largest decline across all submarkets in 215, falling by 1.2% y-o-y to $2.75 per sq ft per month. The fall in rent coincides with the higher number of new completions in the suburban districts. On the other hand, rents for luxury apartments are more resilient, falling by 1.6% y-o-y to $4.55 per sq ft per month. Figure 6 Resale Non-Landed Residential Prices (Q1 211=1) Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Luxury Prime freehold Suburban leasehold Source: URA, DTZ Research Investment Investment sales declined by 9.3% in 215 Figure 7 Investment sales in 215 declined by 9.3% to Investment sales (S$ m) $16bn, the lowest sales volume since 29. The fall in investment sales was largely due to the mismatch of price expectations between buyers and sellers, and the slowdown in launches of new land parcels from the Government Land Sales (GLS) programme. Sales by government agencies fell by 13.4% to $5.8bn in 215, while private investment sales fell by 7.9% to 45, 4, 35, 3, 25, 2, 15, 1, 5, $1.3bn (Figure 7). Q1 Q2 Q3 Q4 Biggest deals in 215 emanated from GLS Source: DTZ Research In 215, the biggest transaction completed was the sale of the Paya Lebar land parcel for $1.67bn to Abu Dhabi Investment Authority and Lend Lease. The developers have obtained the provisional permission to build a project that will have 91,34 sq m gross floor area of office space, and 43,74 sq m of retail space in addition to the 429 apartments. Among the residential land parcels sold via the GLS programme, the sale of land parcel at Dundee Road, which is near the Queenstown MRT Station, fetched the highest price at $483m. The site, which was awarded to Hao Yuan Investment, also saw the highest price per plot ratio among the residential sites awarded in 215 at $871 per sq ft per plot ratio. The breakeven price for the proposed development is expected to be at least $1,24 per sq ft. Potential opportunities in 1H 216 GLS programme Regulatory constraints such as extension conditions from Qualifying Certificate rules and Additional Buyers Stamp Duties have effectively curbed developers interest to purchase land through en bloc sales. Hence, more residential sites in the Reserve List are anticipated to be triggered. A case in point was the land parcel at New Upper Changi

5 Road/Bedok South Ave 3, which was triggered on 7 January 216. Other possible sites that may be triggered included the land parcels at Margaret Drive and Bartley, where both areas saw healthy sales in recent launches. In the 1H 216 GLS Confirmed List, the land parcel at Martin Place offers an attractive proposition to developers because the pipeline supply in the prime districts is limited. The 1.59 ha land parcel, which can yield about 445 apartments, is located within District 9 and proximate to River Valley Primary School. Private investment sales declined by 7.9% y-o-y Private property sales fell by 7.9% y-o-y to $1.2bn in 215. Sales were also affected by the uncertainty in global markets, as local investors seek to diversify their portfolio by growing their asset pool overseas. Notwithstanding, there was still much interest for Singaporean properties in 215 given the country s good governance and dynamic economic environment. Investors keen on properties with redevelopment potential Investors are willing to bid for leasehold projects that are priced reasonably and have the potential to be value added through redevelopment or additions and alteration works. For instance, The Verge was transacted at $317m ($1,328 per sq ft of GFA) in Q4 215 and the retail mall can be redeveloped to a mixed-use development. More recently, Harper Kitchen, a freehold industrial building near Tai Seng MRT station, was sold for $51.1 m ($611 per sq ft per plot ratio) to Nanshan Group Singapore. The building s existing gross floor area (GFA) is estimated at 54,25 sq ft and can be redeveloped to yield 83,624 sq ft. Going forward, the real estate investment market in Singapore will present interesting opportunities to investors in 216 as capital values of properties are likely to be under pressure from events pertaining China s slower economic growth and the falling oil prices. Retail Average islandwide prime first-storey rents fell by 5.7% in 215 Average islandwide prime first-storey rents fell by 1.2% q-o-q and 5.7% y-o-y to about $3.5 per sq ft in Q The 5.7% y-o-y decline was the largest fall since Q3 29, when average rents softened by 6.% y-o-y. Much of the decline in rents in 215 was attributed to weakened consumer sentiments amid global economic uncertainty. Among the regions, rents in Orchard/Scotts Road were the most resilient in 215, which were largely supported by the lack of new completions. Average prime first-storey rents in Orchard/Scotts Road saw a gentler decline compared to the other regions, falling by 1.% q-o-q and 5.% y-o-y to $38.5 per sq ft in Q The average prime first-storey rents in the suburban areas were also relatively resilient, dipping by 1.2% q-o-q and 5.7% y-o-y to $31.7 per sq ft in the same period. In contrast, average prime first-storey rents in the other city areas registered a greater Figure 8 Retail development pipeline including projects on awarded GLS sites, sq ft (million) Orchard/Scotts Road Other City Areas Suburban Areas Source: URA, DTZ Research decline of 1.4% q-o-q and 6.9% y-o-y to about $21.8 per sq ft in Q4. The larger decline of rents in the other city areas was mainly due to the area s dependence on the weekdays office crowd for sales volume.

6 Occupancy rate healthy at above 9% catchment Although islandwide rental values softened over the past year, occupancy rates remained healthy from Q1 to Q3 215 as landlords become more flexible during tenancy negotiations. In fact, overall retail occupancy inched up.3 percentage point q-o-q to 92.1% in Q3 215, according to the URA statistics. Occupancy rates in Orchard/Scotts Road remained unchanged at 92.% q-o-q in Q3 215, while occupancy rates in the other city areas and suburban areas inched up q-o-q by.6 percentage point and.1 percentage point to 9.6% and 93.1% respectively. The completion of several asset enhancement initiatives (AEIs) over the period had also helped to support occupancy levels, as tenants move into the newly renovated malls. AEIs that completed in the first three quarters are Marina Square, Suntec City, Tampines Mall and VivoCity. 1.2 million sq ft of NLA expected to complete in 216 About 1.2 million sq ft of retail NLA is projected to come on-stream in 216. Most (6%, or 743, sq ft) of the upcoming completions are situated in the other city areas (Figure 8). The major developments slated to complete in 216 include mixed-use projects such as OUE Downtown Gallery, The Heart at Marina One and Tanjong Pagar Centre. The remaining 4%, or about 51, sq ft of NLA will be introduced in the suburban areas. No completions are expected in Orchard/Scotts Road in 216. Figure 9 Retail Rental Index (Q1 211=1) Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 Q4 211 Q4 212 Q4 213 Q4 214 Q4 215 Q4 216 Source: DTZ Research Pop-up stores to create unique experiences Amid the challenging operating environment over the past year, landlords have certainly become more open to exploring new retail concepts to combat retail fatigue. Apart from reeling in international brands, newer retail malls are also incorporating pop-up stores to create unique experiences for shoppers. Nonetheless, the relatively large impending supply in the other city areas, coupled with uncertainties in the global economy, is expected to exert further downward pressure in rental values in 216 (Figure 9). Office CBD rents fell by 5.1% in 215 Average office rents in the CBD continued to decline for the second consecutive quarter, falling to $1.15 per sq ft per month in Q4 215 from $1.4 per sq ft per month in Q This brought about a 5.1% decrease in CBD rents for 215, which was the first annual fall since 212. Within the CBD, monthly gross rents in Marina Bay contracted the most y-o-y, by 5.7% to $12.5 per sq ft. Rents in Raffles Place fell Figure 1 Office rental indices (Q1 211=1) Q4 26 Q4 27 Q4 28 Raffles Place Source: DTZ Research Q4 29 Q4 21 Q4 211 Q4 212 Q4 213 Q4 214 Q4 215 Q4 216 Shenton Way/Robinson Rd/Cecil St

7 less, by 4.8% y-o-y to $1.28 per sq ft per month (Figure 1). This was due to a lack of new office supply and higher occupancy rates in Raffles Place area. Mixed performance in 215 The office sector in 215 was a tale of two halves. Office rents in the CBD peaked $1.85 per sq ft per month in Q1 215, after increasing for 7 consecutive quarters since Q The rents were supported by strong demand from the insurance, technology, media and telecommunications sectors and serviced offices, and limited new office supply. In addition, tenants moving into CapitaGreen brought the net demand for office space in the CBD to 496, sq ft in 1H 215. Major movers included Border & Cie, Jardine Lloyd Thompson, Mitsubishi Estate Asia and Jones Day. As such, this resulted in an increase in islandwide net absorption from 623, sq ft in 2H 214 to 819, sq ft in 1H 215. The demand for office space, however, weakened in 2H 215 due to uncertain economic prospects pertaining to the slowdown in China s economic growth and falling oil prices. Typical large-space occupiers, particularly financial institutions, held back their expansion plans while others consolidated their businesses to fewer locations in the CBD or at alternative locations. Additionally, the amount of shadow space in the CBD increased to 122, sq ft in Q4 215 from 42, sq ft in Q Hence, net demand in the area fell to -39, sq ft in 2H 215, resulting in the net demand for the area to be 457, sq ft for 215. Islandwide net demand also decreased to -286, sq ft in 2H 215, bringing about the islandwide net demand to 534, sq ft for the whole of 215, from 1.3 million sq ft in 214. Rents expected to be under pressure to decline further with the expected large completions in 216 Office rents are expected to slide further from the expected completions in 216, particularly in 2H 216, Figure 11 Office development pipeline including projects on awarded GLS sites, sq ft (million) Termination CBD CBD fringe Decentralised areas Source: URA, DTZ Research when landmark developments such as Guoco Tower, Marina One and Duo Tower are scheduled to complete. In 216, 4.3 million sq ft of office space will be completed islandwide, with 2.4 million sq ft in the CBD, 1.7 million sq ft in the city fringe and the remaining in decentralised areas. Based on the past 1-year annual average demand of 1.4 million sq ft, the office supply in 216 will take around 3 years to be absorbed by the market. This is notwithstanding the 17, sq ft of shadow space that will be released in the future, and the 1.4 million sq ft and 2. million sq ft of office space expected to complete in 217 and 218 respectively (Figure 11). Additionally, the demand for space is expected to be lukewarm as concerns over weaker global economic growth continues to grow. Notwithstanding, companies are also seeing the window of opportunity to review their immediate and future needs, be it co-location or relocation to better quality premises, given the large availability of Grade A options in 216.

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