PROPERTY INSIGHTS Singapore Quarter 2, 2012 Market Overview Purchase sentiment improved While lingering concerns over the eurozone debt problems continued to plague occupier sentiment in Q2 2012, purchase demand was buoyant among investors and home buyers. Resale volume of private homes rose in Q2 as new benchmark prices for suburban launches drove buyers to the secondary market in search of better value. As a result, resale prices of private homes gathered pace across most segments, with landed home prices increasing faster than that of non-landed homes (Figure 1). Purchase demand for private homes is expected to remain healthy due to the low interest rate and buoyant employment market but the strong pipeline of developments will intensify competition for purchasers and tenants and limit price increases, particularly in the face of slower economic growth. The limited supply of first-storey retail space with prime frontage and continued interest from international retailers saw retail rents in Orchard/ Scotts Road area rising marginally in Q2. Retail rents are forecast to be largely flat for the rest of the year Figure 1 Residential price indices 120 110 100 90 80 70 Q2 09 Q3 09 Q1 10 as the tight labour market remains a concern for retailers, with further supply-side pressure from the potential supply coming on-stream. Luxury freehold condominiums Suburban leasehold condominiums Suburban leasehold terrace houses Business space rents came under pressure in Q2 with declines in CBD offices, business park and hitech industrial space, with only rents for conventional industrial space holding firm in the quarter. Business space rents are forecast to fall in all segments, with office rents falling more followed by hi-tech industrial rents. Q2 12
Trends & Updates Economic Overview Based on advance estimates by the Ministry of Trade and Industry (MTI), the economy contracted by 1.1% on a quarter-on-quarter (q-o-q) seasonallyadjusted annualised basis in Q2 after expanding 9.4% in Q1, mainly due to a contraction in the manufacturing sector (Figure 2). On a year-on-year (y-o-y) basis, the economy grew 1.9%, slightly higher than the 1.4% growth in Q1. Despite the q-o-q contraction in GDP, the Purchasing Managers Index (PMI) remained at 50.4 in June, marginally above the expansionary reading of 50 (Figure 3). However, sluggish global demand buffeted by continued concerns over the eurozone debt problems and slowing growth of the US and China economies could exert more pressure on manufacturing activity in the coming months. Besides a slower growth momentum, inflation remains another key concern as the Consumer Price Index (CPI) rose 5.0% y-o-y for the period of January to May 2012, just slightly below the 5.2% recorded for the whole of 2011. Inflationary pressures are exacerbated by rising labour costs amidst a tight job market. The government continued to tighten the inflow of foreign labour as well as increase wages for low-income earners. The unemployment rate remained low at 2.1% in March (Figure 4). In a bid to anchor inflation expectations, ensure medium-term price stability and maintain sustainable growth, the MAS increased the slope of the SGD NEER policy band and restored a narrower policy band in its April review to allow the SGD to appreciate modestly and gradually. Liquidity is expected to remain abundant in the market as the extension of Operation Twist by the Federal Reserve will continue to keep domestic interest rates low, and keep the property market buoyant. Figure 2 GDP growth rates 40% 30% 20% 10% 0% -10% -20% Source: MTI Q1 10 * Advance estimates Figure 3 Singapore PMI 54 52 50 48 46 Source: SIPMM Figure 4 GDP growth (y-o-y) GDP growth (q-o-q) *Q2 12 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Inflation, interest rate and unemployment rate 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% CPI change (q-o-q) Overall unemployment rate Source: MTI, MAS, MOM 3-month SIBOR *CPI figures for Q2 12 are based on April and May. Unemployment figures for Q2 12 are not available. *Q2 12
Residential Resale prices of private homes gathered pace across most segments as buying sentiment returned. Demand for landed homes continued to be strong with prices increasing more than that for non-landed homes. Resale prices in the suburban areas continued to rise more than those in the prime districts of 9, 10 and 11. Resale prices of leasehold terrace homes and freehold landed homes in the suburban areas rose 2.0% q-o-q and 1.2% q-o-q respectively in Q2, compared to Q1 s increase of 1.9% and 1.6%. In comparison, landed homes in the prime districts of 9, 10 and 11 registered a smaller q-o-q increase of 1.0%, similar to that in Q1. In the non-landed segment, where some new launches in the suburban areas set new benchmark prices, buyers looked to the secondary market for better value (Table 1). This led to a pick-up in resale volume from March after a lacklustre January and February as buyers adopted a wait-and-see stance after the implementation of the Additional Buyer s Stamp Duty (ABSD) measures in December 2011. Preliminary estimates based on caveats lodged for secondary home sales (excluding executive condominiums) in April June numbered 3,916 units, already 48% higher than Q1 s 2,648 units (Figure 5). As a result, resale prices of freehold condominiums in the prime districts of 9, 10 and 11 registered a q-o-q increase of 0.5% in Q2, reversing the fall of 0.7% in Q1. Resale prices of leasehold condominiums increased at a faster pace of 0.6% in Q2, compared to 0.3% in Q1 (Figure 6). Similarly, resale prices of luxury apartments registered a smaller fall of 0.5% q-o-q in Q2 compared to the decline of 0.8% in Q1. Table 1 Selected new launches in Q2 2012 Development Tenure Estimated no. of units launched (sold) Price range ($ per sq ft) Eight Riversuites 99 yrs 862 (225) 1,056 1,670 Hillsta 99 yrs 406 (173) 861 1,333 Flo Residence 99 yrs 338 (266) 573 969 Katong Regency FH 244 (241) 1,245 2,011 Sky Habitat 99 yrs 180 (129) 1,435 1,893 Figure 5 Primary and secondary home sales (excluding executive condominiums), units 5,000 4,000 3,000 2,000 1,000 Source: 0 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 *Jun-12 Primary sales Secondary sales Units launched URA REALIS, 12 July, DTZ Research *Note: June 2012 primary sales and launches data from URA are not available yet. Figure 6 Residential price indices 120 100 80 60 Q2 09 Q3 09 Q1 10 Rents of non-landed homes across all segments also grew more strongly in Q2, due to a seasonal increase in leasing activity in April and May. Expatriates relocating to Singapore after the summer holidays tend to confirm their rental Luxury freehold condominiums Suburban leasehold condominiums Suburban leasehold terrace houses Q2 12
contracts during this period. Supported by rental demand in the $3,000-$7,000 per month range from mid-tier working professionals, rents of suburban condominiums increased the most by 1.9% q-o-q in Q2, after increasing 0.6% in Q1. Similarly, rents of prime condominiums increased in Q2, but by a smaller 1.5%, following a period of no growth in Q1. Purchase demand for private homes is expected to remain healthy due to the low interest rate and buoyant employment market. However, the strong pipeline of developments will intensify competition for purchasers and tenants and limit price increases particularly in the face of slower economic growth. Retail Retail rents generally held steady in Q2, with both Orchard/Scotts Road and suburban areas seeing a marginal increase while other city areas saw a slight fall. The average gross fixed rent of prime retail space in Orchard/Scotts Road rose 0.1% q-o-q to $30.33 per sq ft per month. First-storey retail space with prime frontage remains limited with some of the prime first-storey space vacated by previous tenants such as in Wheelock Place and The Heeren being quickly taken up by other retailers. The prime retail belt also saw the entry of new international brands such as Tory Burch and Tommy Bahamas, reflecting interest from international retailers as they shift focus to the Asia Pacific which is growing more strongly than the western economies. The average gross fixed rent of prime retail space in suburban areas rose by 0.2% to $28.35 per sq ft per month as demand in the suburban areas remained strong with a captive customer base. International retailers have been venturing into the suburban areas to tap on the strong local spending power. The latest foreign retailers with their first foray in the suburban areas are H&M in JEM and Franc Franc in JCube. Retail rents are expected to be largely flat for the rest of the year due to heightened uncertainties in Figure 7 Retail rental index in Orchard/Scotts Road 115 110 105 100 95 90 Figure 8 Q4 02 Q4 03 Q4 04 Q4 05 Q4 06 Q4 07 the eurozone and the Chinese economic slowdown (Figure 7). The tight labour market and rise in wages for low-wage workers could also hamper retailers plans to expand, especially those in the F&B sector which is more labour intensive. Both Orchard/ Q4 08 Q4 12 Retail development pipeline including projects on awarded GLS sites, sq ft (mil) 2.0 1.5 1.0 0.5 0.0 2012 2013 2014 2015 2016 Q4 13 Orchard/Scotts Rd Other city areas Suburban areas Completed in H1 2012
Scotts Road and suburban areas are also expected to face supply-side pressure for the next two years due to the upcoming pipeline supply which includes orchardgateway, Westgate and JEM (Figure 8 and Table 2). The ample potential supply coming on-stream has exerted pressure on retail landlords to constantly renovate or update their tenant mix. Notwithstanding the competition, most landlords are selective in offering space to control their tenant mix. At the same time, retailers are also selective in committing to rental space as they desire prime frontage and good shopper traffic. This has resulted Table 2 Upcoming retail projects Name of development Est NLA (sq ft) Est TOP year Redevelopment of Atrium@Orchard 127,000 2012 orchardgateway 180,000 2013 Westgate 426,000 2013 JEM 331,000 2013 Bedok Residences 230,000 2014 Waterway Point 356,000 2015 in temporal vacancies in some shopping centres, especially those in non-prime locations, as landlords were not able to find the right mix of tenants. Offices Average gross face rents for prime office space in the CBD declined in Q2, as global economic uncertainties continued to plague occupier sentiment. This was despite pockets of demand from occupiers who saw the current climate as an opportunity to upgrade to better-quality space. The average gross face rent for prime office space in Raffles Place declined by 3.1% q-o-q to $9.50 per sq ft per month in Q2 while Shenton Way/Robinson Road/Cecil Street rents declined by 2.6% q-o-q to $7.55 per sq ft per month (Figure 9). Although occupancy rates in the CBD remain healthy at levels above 90%, most landlords are still prepared to offer competitive terms even if they are not rushing to lower their rents significantly. Some landlords are however offering more incentives such as longer rent holidays to lock in long-term leases in anticipation of slowing demand and rising vacancies. The average occupancy rate for office space at Raffles Place fell 0.7 percentage-point in Q2 to about 92%. In Shenton Way/Robinson Road/Cecil Street, the removal of Chow House from the stock in Q2 saw occupancy rate rising 1.3 percentage-points to about 95% in Q2. The average occupancy rate for Figure 9 Office rental indices 210 140 70 0 Q4 03 Q4 04 Q4 05 Q4 06 Q4 07 office space at Marina Bay increased the most by 4.5 percentage-points to about 72% as occupiers started to move into Marina Bay Financial Tower 3 which was completed at the end of the previous quarter. CBD rents are expected to continue to face downward pressure as occupiers brace themselves for the global economic slowdown, notwithstanding a lower-than-average net increase in supply of 1.1 million sq ft of office space in 2012, after taking into account existing buildings that have been or will be removed from the stock (Figure 10). UIC Building and Prime Centre were removed from the stock in H1 for redevelopment (Table 3). Other buildings Q4 08 Q4 12 Raffles Place Shenton Way/Robinson Road/Cecil Street Q4 13
expected to be terminated later this year include Marina Bayfront, where the developer has obtained planning permission to convert the office building to retail space. The low increase in supply will be negated by existing space that is expected to be vacated. Close to 610,000 sq ft of existing office space is estimated to become available in H2 2012 and 2013 as occupiers such as DBS, Citibank, CISCO and Credit Suisse vacate their current premises to move to the new buildings which they have pre-committed to. This is in addition to the estimated 285,000 sq ft of shadow space in Q2, which has risen about 32% q-o-q, with the bulk (48%) in Raffles Place, and is expected to increase to about 358,000 sq ft by the end of the year. Shadow space is excess space that companies have leased but are looking to assign or sublet. Figure 10 Office development pipeline including projects on awarded GLS sites, sq ft (mil) 4 3 2 1 0-1 2012 2013 CBD Decentralised Completed in H1 12 Table 3 2014 2015 2016 CBD Fringe/Orchard Road Termination Office buildings already terminated in 2012 Development Est. NLA (sq ft) UIC Building 322,000 Prime Centre 72,000 Chow House 32,000
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