PROPERTY INSIGHTS Singapore Quarter 2, 2015 Market Overview Residential sales show improvement Real estate investment in Singapore declined by 8% q-o-q to $3.7bn in. The decline was largely attributable to the drop in private investor activity, which fell by 69% q-o-q to $932m in Q2. Notwithstanding, the fall in investment sales was cushioned by Government Land Sales (GLS), which increased by 170% q-o-q to $2.74bn in Q2. Average monthly gross office rents in the CBD held firm at $10.85 per sq ft in Q2. While rents were supported by the lack of new completions for the rest of 2015, leasing activity was modest on the back of 4.45 million sq ft of pipeline supply in 2016. There was also slower demand in Q2 as some occupiers delayed expansion plans while new market entrants moderated. Average monthly gross rents for business parks rose by 1.0% q-o-q to $5.10 per sq ft in Q2, similar to the pace of growth in Q1. This was supported by qualifying office tenants seeking more cost-effective space. In contrast, the contraction of the manufacturing sector lowered demand for conventional factory space. There is 40.4 million sq ft of NLA in the pipeline for the period from 2015 to 2019, the bulk (46%) of which will be completing in 2016. Figure 1 Resale Non-Landed Residential Prices (Q1 2011=100) 120 110 100 90 80 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Luxury Prime freehold Suburban leasehold Islandwide occupancy in the retail sector declined by 1.3 percentage points q-o-q to 92.2% in, largely due to falling visitor arrivals and weakening retail sales. Amid the challenging operating environment, average rents islandwide fell by 1.4% q-o-q to about $25.05 per sq ft in Q2 as landlords were more flexible during rental negotiations. The residential market was more active in Q2 as sales increased by 46.8% q-o-q to 3,866 units. While house prices continued to soften in Q2, the decrease in prices has moderated across all segments (Figure 1).
Trends & Updates Economic Overview Moderation of GDP in Based on the advanced estimates provided by the Ministry of Trade (MTI), the Singaporean economy grew by 1.7% year-on-year (y-o-y) in Q2. This was lower than the 2.8% y-o-y growth in the previous quarter and the 2.7% growth expected by economists in the quarterly survey by the Monetary Authority of Singapore (MAS) in June. In contrast, on a q-o-q rolling annual growth basis, the economy took a negative turn, contracting 4.6%, a reversal from the 4.2% growth in Q1 (Figure 2). Further contraction in manufacturing sector while services producing industries ease growth Contraction persisted for the manufacturing sector, with a further decline of 4.0% y-o-y in Q2, following a 2.7% y-o-y decline in the previous quarter. This was a result of the reduction in output in the biomedical manufacturing and transport engineering clusters. The purchasing managers index (PMI) saw slight improvement in Q2. There was a slight decline in PMI in April to 49.4, followed by a marginal increase to 50.2 in May, and then again to 50.4 in June (Figure 3). The general improvement was due to an increase in new orders, production output and inventory. However, with the weak global backdrop stemming from the Greece debt crisis and meltdown in the Chinese stock market, the outlook for Singapore s manufacturing sector remains uncertain. Non-oil domestic exports (NODX) for Singapore fluctuated in Q2. In April, non-oil exports posted 2.2% growth followed by a drop of 0.2% in May (Figure 3). A slowdown was seen in PC-related electronics and petrochemical exports. There has also been a tendency for manufacturers to shift their emphasis to exporting services, rather than products. Economists Figure 2 GDP growth rates 20% 15% 10% 5% 0% -5% Source : MTI Figure 3 GDP growth (y-o-y) Singapore PMI and NODX 54 52 50 48 46 Apr-2014 May-2014 Jun-2014 Jul-2014 Aug-2014 PMI (LHS) Sep-2014 Oct-2014 Nov-2014 Dec-2014 GDP growth (q-o-q) Jan-2015 Feb-2015 Mar-2015 Apr-2015 May-2015 Source: Source: SIPMM, IE Singapore, DTZ Research *NODX figure for Jun 15 is not available yet at the time of publication. Jun-2015 NODX growth (y-o-y) (RHS) 40% 20% 0% -20% -40% forecast soft growth in NODX in the coming months due to the weak external conditions and on-going economic restructuring in Singapore. Services producing industries continue to grow moderately at 3.0% y-o-y in Q2, from 4.2% y-o-y growth in Q1. Slower expansion in the wholesale/retail trade and business services sectors, together with contraction in the transportation and storage sector, contributed to the modest growth this quarter.
Continual decline in CPI while overall unemployment rate remained low The softening housing rental market and the fall in oil prices globally contributed to negative CPI growth in May which has been declining since (Figure 4). As of Q1, the unemployment rate remained low at 1.8%, a 0.1 percentage point decline q-o-q (Figure 4). This was a result of fewer redundancies and more job openings. With the tight labour market and low unemployment rate in Singapore, this may be reflective of the slowing down of the local labour supply going forward. Figure 4 CPI, unemployment rate and interbank overnight rate 3% 2% 1% 0% -1% CPI change (y-o-y) Interbank Overnight Rate Source : MTI, MAS, MOM, DTZ Research *CPI figures and Interbank Overnight Rates for Q2 15 are based on April and May. Unemployment figures for Q2 15 are not available yet at the time of publication. Overall unemployment rate Residential Residential sales picked up Market activity in the private housing market picked up significantly in Q2, as sales increased by 46.8% q-o-q to 3,866 units (Figure 5). Historically, sales in Q2 tend to be highest. Developers launched 2,101 units in Q2, with about 66% of the units launched in April (1,382 units). Notwithstanding, the number of units launched in June dwindled to 219 units due to the school holidays. Correspondingly, primary sales have risen by 58.7% q-o-q to 2,185 units. The resale market has also become more active in Q2 as the transaction volume moved up by 33.8% q-o-q to 1,691 units. Five developments were launched in Q2 (Table 1). Of which, Botanique at Bartley and North Park Residences achieved outstanding take-up rates of 80.6% and 93.5% respectively. Both developments have similar attractions that appeal to buyers and were close to Mass Rapid Transit stations and other amenities. The units, albeit smaller, were attractively priced. In Q2, the government also released the net prices of properties, after accounting the value of benefits extended to the buyers. The data showed that buyers of Neem Tree were offered an average discount of 5% and buyers of Pollen and Bleu offered an average discount of 2.6%. In time to come, we anticipate that Figure 5 Home Sales (excluding executive condominiums), units 3,000 2,500 2,000 1,500 1,000 500 0 April 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May 2014 June 2014 Jul 2014 Aug 2014 Sep 2014 Oct 2014 Nov 2014 Dec 2014 Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Primary sales Secondary sales Units launched Source: URA, 15 July 2015, DTZ Research Table 1 New Launches in Development Botanique at Bartley HILBRE28 Neem tree North Park Residences Pollen and Bleu Westwood Residences (EC) Total Number of units sold (units launched in the quarter) 403(500) 6(10) 10(24) 561(600) 11(28) 137(480) 865(1,532) Price range ($ per sq ft) 1,080-1,385 1,104-1,367 1,558-1,640 1,077-1,558 1,791-2,045 810-721 developers will offer fewer benefits as it becomes less worthwhile to do so.
Rents for luxury and prime housing units largely remained unchanged q-o-q in Q2 Rents for luxury and prime apartments in Q1 have largely stayed the same as those in Q1. Rents for luxury apartments stayed flat in Q2 at $4.60 per sq ft per month, while rents for condominiums in the prime district dipped marginally by 0.6% q-o-q to $4.60 per sq ft per month. In contrast, the average rent for a condominium unit in non-prime areas fell by 2% q-o-q to $2.90 per sq ft per month due to more completions. Notwithstanding, the q-o-q rental decline has moderated in Q2, as rents for apartments in non-prime areas registered a 3% fall in Q1. Figure 6 Resale Non-Landed Residential Prices (Q1 2011=100) 120 110 100 90 80 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Luxury Prime freehold Suburban leasehold Fall in prices has moderated While house prices continued to soften in Q2, the decrease in price has moderated for all segments (Figure 6). Prices for luxurious condominiums declined slightly by 0.5% q-o-q to $2,285 per sq ft, while prices for prime freehold condominium units stayed flat q-o-q at $1,730 per sq ft. Leasehold suburban condominiums also saw a slower decline in prices in Q2. The leasehold suburban market segment saw a 1% fall in prices in Q2, which was less than the 1.4% decline recorded in Q1. Moving forward, sales are expected to slow down in Q3 as buyers avoid purchasing homes during the Chinese Seventh Month. Prices for leasehold suburban condominiums are also likely to face greater downward pressure, especially when the recently sold residential sites from GLS Programme come into the market. Additionally, the expected increase in interest rates may cause prices to decline further. However, prices of housing in choice locations are expected to be more resilient. Investment Real estate investments contracted in Q2 Real estate investment in Singapore declined by 8% q-o-q to $3.7bn in (Figure 7). The decline was largely attributable to the drop in private investor activity, which fell by 69% q-o-q to $931.7m in Q2. The fall in investment sales was, however, cushioned by Government Land Sales (GLS), which increased by 170% q-o-q to $2.74bn in Q2. The sale of a land parcel at Paya Lebar via the GLS programme was the largest real estate investment deal concluded in Q2. The site, which was awarded to Lend Lease and Abu Dhabi Investment Authority for a winning bid of $1.67bn ($10,146 per sqm GFA), can generate about 164,769 sq m (1.78 million sq ft) of gross floor area. The commercial land parcel at Paya Figure 7 Investment sales, SGD bn 16 14 12 10 8 6 4 2 0 Q1 2013 Residential Office Industrial Retail Mixed Hotel Others Lebar attracted 6 bids, with the winning bid 8.8% higher than the next highest bid.
The other land parcels released through the GLS programme in Q2 also attracted much interest among developers. The residential land parcel at Tampines drew 12 bids and was awarded to MCC Land for $228m ($5,195 per sqm GFA). Likewise, the Toa Payoh residential site attracted 14 bids with Evia Real Estate, United Engineers and Gamuda winning the tender at $346m ($8,130 per sq m GFA). The land parcel at Dundee Road drew 9 offers, with HY Realty coming in with the highest bid of $483m ($9,377 per sq m GFA). In contrast, real estate investment volume in the private market in Q2 has shrunk significantly. Private investment in the office sector plummeted from $1.28bn in Q1 to $183m in Q2. Similarly, the industrial sector saw a 56% q-o-q decline in investments to $288m in Q2. Notwithstanding, investment activity picked up towards the end of Q2. These deals included Suntec REIT s divestment of Park Mall for $412m and DBS Group Holdings Limited s acquisition of the 30% stake of DBS China Square Limited it does not own from Capitaland Investments Pte Ltd for $150m. The acquisition of the 30% stake gave DBS sole ownership of PwC Building. Despite the lower private investment volume registered in Q2, the lot size has increased by 33% q-o-q to $90m. Additionally, investment sales are expected to pick up if several large commercial buildings in market were transacted. These include the Asia Square Tower 1, which was currently owned by a Blackrock-managed fund. Blackrock hopes to get more than $4bn for the building, which has about 1.29m sq ft of net lettable area for both retail and office components. The submission of expression of interest (EOI) for Asia Square Tower 1 will close on 19 Aug 2015. Other commercial properties in the market include the CPF building along Robinson Road, a 50% stake in Capital Square, and Scorpio east building on Tai Seng Avenue. However, the price gap between buyers and sellers remained wide and sales took longer to complete. Separately, Heeton Holdings is seeking buyers for the proposed en bloc sale of iliv Grange. Figure 8 Net Buyers in (SGDbn) Property companies Public sector/government REITs Funds Corporates -2-1 0 1 2 Purchase REITs were less active in Q2 Sell In Q2, REITs only invested $97m in the Singapore real estate market, some $510 m less than that in Q1. Property companies continued to be active in Q2 due to their acquisitions through government land sales. At least $2.55bn flowed to overseas real estate market Some $2.55bn was invested into overseas real estate market by GIC, local property developers and REITs. Notable deals include SG REIT s purchase of the Myer Centre in Adelaide for $302m, Fortune REIT s purchase of Laguna Plaza for $324m, and the purchase of Sandhill Plaza at Shanghai by Mapletree Greater China Commercial Trust for $402m. Besides seeking higher returns, local developers and REITS are also seeking high quality assets in gateway cities to reduce their exposure to systematic risks in Singapore.
Retail Islandwide occupancy rate dipped 1.3 percentage points q-o-q to 92.2% Islandwide retail space recorded negative net absorption of approximately 293,000 sq ft in. Correspondingly, the islandwide occupancy rate in the first quarter was 1.3 percentage points lower than the previous quarter at 92.2%. In, the occupancy rate in Orchard/Scotts Road dipped by 1.6 percentage points q-o-q to 92.7%, while the occupancy rate in the other city areas fell by 2.8 percentage points q-o-q to 90.4%. Demand in suburban areas continued to hold firm with the occupancy rate largely remaining unchanged at 93.2%. For the remainder of this year, some 833,000 sq ft of NLA is scheduled to be released into the market. The AEI at Technopark @ Chai Chee is expected to contribute another 230,000 sq ft of retail space into the pipeline (Table 2). Excluding the AEI at Technopark @ Chai Chee, the majority (76%, or about 635,000 sq ft) of the upcoming retail space will be located in suburban areas (Figure 9). Of this, 23% or some 190,000 sq ft, will be situated in the other city areas while the remaining 1%, or about 8,000 sq ft, will be located in Orchard/Scotts Road. Table 2 Upcoming major retail projects Name of development Area Est NLA Est (sq ft) TOP Year Waterway Point A/A Technopark @ Chai Chee Suburban Area Suburban Area 370,000 230,000 2015 2015 A/A to existing Marina Square Complex OUE Downtown 1 Hillion Mall The Heart (Marina One) Source : URA, DTZ Research Figure 9 Retail development pipeline including projects on awarded GLS sites, sq ft (million) 1.6 1.2 0.8 0.4 0.0 2015 2016 2017 2018 2019 Orchard/Scotts Road Other city area Suburban area Source: URA,DTZ Research Other City Area 150,000 2015 Other City Area Suburban Area Other City Area 159,000 154,000 140,000 2016 2016 2016 Retail sales slipped 0.7% y-o-y in April Figure 10 According to the latest release from the Retail rental indices Department of Singapore Statistics, retail sales (excluding motor vehicles) fell by 0.7% y-o-y in April. The decline was led by falls in Food and Beverages (-7.0%), Recreational Goods (-5.1%) and Wearing Apparel & Footwear (-5.0%). 115 110 105 100 95 90 85 According to Singapore Tourism Board (STB), visitor arrivals to the country have continued to slow. Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2015 Q4 2016 In April, the total number of visitor arrivals to Singapore, excluding Malaysians by land, fell by 3% y-o-y to 1.2 million. Between January and April, total visitor arrivals fell by 5.4% y-o-y to 4.85 million.
Average rents islandwide declined 1.4% q-o-q in Q2 The tepid retail environment has been reflected in the fall in islandwide average rents, which fell by 1.4% q-o-q to about $25.05 per sq ft in. Due to the limited catchment area, rents in the other city areas were more affected by the weakened retail performance. In Q2, average rents in the other city areas declined by 1.8% q-o-q to $17.65 per sq ft. Average rents in Orchard/Scotts Road fell by 1.5% q-o-q to about $29.70 per sq ft, while average rents in suburban areas dipped 1% q-o-q to about $27.75 per sq ft (Figure 10). Given the challenges, landlords are more flexible to ensure occupancy. Landlords introduce new-to-market brands to revitalise the retail sector In relation to the onset of falling visitor arrivals, Singapore Airlines, Changi Airport and STB have recently announced in June that they will be spending $20 million jointly over the next two years to boost tourism arrivals. Intense mall competition has also led landlords to reinvent themselves by introducing new-to-market brands to inject. Offices Average gross rents in the CBD held firm Average office rents in the CBD stayed flat q-o-q at $10.85 per sq ft per month in Q2. The average monthly gross rent in Marina Bay remained the highest at $13.75 per sq ft, followed by Raffles Place at $10.80 per sq ft. While rents were supported by the lack of new completions for the rest of 2015, leasing activity was modest on the back of the 4.45 million sq ft of pipeline supply in 2016. Major 2016 developments in the CBD include Guoco Tower, Marina One, and Duo Tower totalling about 3.3 million sq ft. Rental growth slowed as demand weakened Figure 11 Office rental indices (Q1 2011=100) 240 200 160 120 80 40 0 Q4 2006 Q4 2007 Q4 2008 Raffles Place Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2015 Q4 2016 Shenton Way/Robinson Rd/Cecil St Rental growth slowed in Q2 amid weakened demand in the face of uncertain global situation such as the recent sell-off of equities in PR China and the possible default and exit of Greece from the Eurozone. According to the Ministry of Trade and Industry (MTI), the finance & insurance sector saw a moderated growth of 7.9% year-on-year (y-o-y) in Q1 following the 10.3% y-o-y growth in the preceding quarter. Some office occupiers delayed their expansion plans, whilst the growth of new market entrants moderated. Some landlords have begun offering more competitive terms to improve building occupancy rates amidst the market s resistance to rental increases. Despite this, net demand growth in the CBD was still positive. In H1 2015, net demand was 526,000 sq ft, almost 90% higher than the 277,000 sq ft registered in H2 2014. The office occupancy rate in the CBD crept up by 1.6% percentage-points q-o-q to 96.0% in Q2. Office occupancy in Raffles Place grew the most by 4.1 percentage-points to 96.6% and coincided with the movement of companies into the newly completed CapitaGreen.
Uneven decentralised pipeline supply Going forward, new supply in decentralised areas is patchy. In H2 2015, a total of 437,000 sq ft will be introduced into the market, of which 71% will comprise projects in decentralized areas. However in 2016, the decentralized area pipeline will be limited at only 130,000 sq ft, before increasing to 728,000 sq ft in 2017 due to the expected completion of Vision Exchange (496,000 sq ft) (Table 3 and Figure 12). Despite this lumpy pipeline from 2015 to 2017, rents in certain parts of this micromarket may not be adversely affected. For instance, firms are likely to be attracted to the Jurong Gateway area following the announcement of the High Speed Railway (HSR) terminus location. Given that rents in the decentralized area are 13% and 46% lower than in the fringe and the CBD respectively, occupiers will be further incentivized to relocate to this area. However, the demand shift into this area will not be immediate. Moreover, the cost savings and advantages to locate in Jurong Gateway may be offset by the possible increase in rents in the area. Notwithstanding these factors, firms will likely be drawn to the Jurong Gateway area in the long run as the benefits of agglomeration become more mature and supply chain links within the area are fully developed. Table 3 Upcoming office projects in 2015 PS 100 JTC Aviation Two @ Seletar Aerospace Wis@changi A/A to existing commercial building 456 Alexandra Road Figure 12 Office development pipeline including projects on awarded GLS sites from Q3, sq ft (million) 5.0 4.0 3.0 2.0 1.0 0.0-1.0 Name of development Area Est NLA (sq ft) Office development at Depot Road Crown @ Robinson Source : URA, DTZ Research 2015 2016 2017 2018 2019 Termination CBD CBD fringe Decentralised areas Source : URA, DTZ Research Decentralised CBD CBD Fringe Decentralised Decentralised Decentralised 204,000 78,000 48,000 41,000 38.000 28.000
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