Citigold Private Client PROPERTY INSIGHTS Singapore Quarter 1, 2015 Market Overview Investment sales grow 18% q-o-q Real estate investment has grown by 18% q-o-q to $3.6 bn in Q1 2015. Blackrock s sale of AXA Tower for $1.17bn formed 32% of the total investment volume in the first quarter (Figure 1). REITs have also been active in the market despite the expiry of their stamp duties remission. Net office demand in Q1 fell by 81% q-o-q to 34,000 sq ft due to seasonal effects. The lack of new supply of office space pushed average monthly gross rents in the CBD by 1.3% q-o-q. The effect of the lack of supply also spilled over to decentralized areas. Average monthly gross rents in decentralized areas stayed high at $8.07 per sq ft in line with higher occupancy rates. Net demand for private industrial space was 5.3 million sq ft in Q4 2014, the highest since Q3 2011. Warehouse net demand rose by 15% q-o-q to 2.6 million sq ft due to the thriving logistics and distribution sector. Additionally, the limited supply of centrally located business parks and hi-tech space this year contributed to an increase of 1.0% to 3.1% in rents in Q1 2015. Figure 1 Investment sales (SGD bn) 16 14 12 10 8 6 4 2 0 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Residential Office Industrial Retail Mixed Hotel Others Average retail rents in Orchard/Scotts Road inched up marginally 0.3% q-o-q in Q1 2015, in view of the limited supply of retail space over the next 5 years. Alternatively, more retail space is projected to come on board in the other city and suburban areas in second half of 2015. Average rents in these areas are expected to stay flat for the rest of the year. Transaction activity in the residential sector eased by 9.5% q-o-q to 2,479 units. However, home sales started to pick up towards the end of Q1. Home prices dipped marginally in the range of 1% to 2% q-o-q. Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
Trends & Updates Economic Overview GDP grew by 2.1% on a yearly basis in Q1 2015 Figure 2 According to the advanced estimates provided by GDP growth rates the Ministry of Trade (MTI), the Singapore economy 20% grew by 2.1% year-on-year (y-o-y). This is higher than the expected rate of 1.5% growth in the initial flash estimate. Notwithstanding, on a q-o-q rolling annual 15% 10% growth basis, the economy expanded at a slower rate 5% of 1.1% than the 4.9% growth rate in the previous quarter (Figure 2). Contraction in manufacturing sector while service-producing industries expand 0% -5% Q1 2013 Source : MTI Q2 2013 Q3 2013 GDP growth (y-o-y) Q1 2014 Q2 2014 Q3 2014 Q4 2014 GDP growth (q-o-q) Q1 2015 The manufacturing sector contracted by 3.4% y-o-y in Q1 2015, following a 1.3% y-o-y decline in the previous quarter. Poor performance in the transport engineering and precision engineering clusters Figure 3 Singapore PMI and NODX 54 40% contributed to the shrinkage in manufacturing output. 52 20% The purchasing managers index (PMI) has dipped slightly in Q1. In January, the PMI contracted marginally from 49.9 to 49.7 in February, and then again to 49.6 in March. The fall was mainly due to the decline in new orders and new export orders. One bright spot was the electronics sector, which received more new orders in March. The orders pushed the electronics sector PMI by 0.3 point month-on-month (m-o-m) to an expansionary reading of 50.1 (Figure 3). Non-oil domestic exports (NODX) for Singapore have also fluctuated in Q1. In February, Non-oil exports posted a 9.7% decline posted. However, this was followed with growth of 18.5% in the month of March (Figure 3), which was attributable to the expansion in both the electronic (10.4% y-o-y growth) and non-electronic sectors (21.6% y-o-y growth). However, the recovery momentum in exports remained patchy with the manufacturers electronics cluster being the least upbeat of the sectors in Q1 2015. 50 48 46 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Source : SIPMM, IE Singapore, DTZ Research Figure 4 PMI CPI and unemployment rate 3% 2% 1% 0% -1% Q1 13 Q2 13 Q3 13 Q4 13 CPI change (y-o-y) NODX growth (y-o-y) Q1 14 Q2 14 Q3 14 Q4 14 Source : MTI, MAS, MOM, DTZ Research *CPI figures for Q1 15 are based on January and February. Unemployment figures for Q1 15 are not available yet at the time of publication 0% -20% -40% Q1 15 Overall unemployment rate
The services producing cluster was another bright spot in the economy as it expanded by 3.1 % y-o-y in Q1 2015. This expansion was facilitated by sectors such as wholesale & retail trade and business services. CPI dipped while overall unemployment rate remained low For the whole of 2014, the overall unemployment rate remained low at 2%. The last registered unemployment rate recorded in December was 1.9% (Figure 4). The tight labour market is expected to persist in 2015, as the government shows no intention to increase the foreign worker quota. Singapore experienced deflation for the fourth consecutive month in February 2015 as the CPI stayed in negative territory. The deflation is attributed to softening rents and the correction in Certificate of Entitlements for cars in Q1 (Figure 4). Residential Transaction activity eased further in Quarter 1 Sales of private homes have fallen by 9.5% q-o-q to 2,479 units in Q1 2015 as buyers remained cautious. This was compounded by festivites in the first quarter. Sales in the secondary market fell by 19.1% q-o-q to 1,102 units. Transaction activity in the primary market largely remained unchanged from previous quarter. Primary sales only started to pick up towards the end of the quarter. Developers sold 613 units in March, up from 390 sales in February and 480 homes a year ago (Figure 5). Figure 5 Home Sales (excluding executive condominiums), units 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Primary sales Secondary sales Units launched Residential projects in choice locations with close proximity to CBD and MRT stations still experienced robust demand. For instance, Sims Urban Oasis, which registered an impressive take-up rate in this quarter, is located in the CBD fringe area and is close to Aljunied MRT station (Table 1). Moving forward, developers are likely to price their projects attractively to ease cashflow and in view of impending competition from rivals who secured land at a lower cost in recent months. Source : URA REALIS, 11 July, DTZ Research Table 1 New Launches in Q1 2015 Development Kingsford WaterBay Marine Blue Sims Urban Oasis Number of units sold (units launched in the quarter) 155 (314) 28(50) 205(205) Price range ($ per sq ft) 904-1,181 1,398-2,021 1,282-1,548 Non-landed resale prices dipped marginally Symphony Suites The Amore 89 (180) 97 (378) 947-1086 750-905 Prices for resale condominiums continued to slide, Total 1127 (574) but the fall moderated to about 1%-2% q-o-q. Based on a basket of completed properties tracked by DTZ Research, the luxury segment registered a 1% q-o-q fall in prices to $2,297 per sq ft. Prices of freehold condominiums located in prime districts 9, 10 and 11
also eased by 2% q-o-q to $1,731 per sq ft. Suburban leasehold condominiums also experienced a smaller q-o-q fall of 1.4% in this quarter. The average price for a freehold suburban condominium is about $856 per sq ft in Q1 2015 (Figure 6). Rents continued to ease in Q1 2015 Overall, rents continued to soften in Q1, with suburban condominiums registering the largest decline at 2.8% q-o-q. Based on DTZ s basket of apartments, the average rent for a suburban condominium is about $2.95 per sq ft per month. Alternatively rents for the luxury segment are slightly more resilient. Rents for luxury apartments slid by only 1% q-o-q to about $4.60 per sq ft per month Sales momentum anticipated to continue into second quarter It is anticipated that transaction numbers will look better in the second quarter. Sales at North Park Residences in Yishun and Botanique at Bartley have Figure 6 Resale non-landed residential price indices (Q1 2011=100) 120 110 100 90 80 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Luxury Prime freehold Suburban leasehold been brisk. Fraser Centrepoint has sold 413 of the 600 units it has released at the 920-unit North Park Residences. Similarly, more than 200 units in Botanique at Bartley were transacted after the 797-unit development was launched in April. Most of the units that sold were usually studio apartments or 2-bedroom dual key units with lower quantum Investment Real estate investments grew by about 18% q-o-q in Q1 2015 Real estate investment activity grew by about 18% q-o-q to $3.6bn in Q1 2015, according to DTZ s figures. The sale of the AXA tower by Blackrock to the consortium led by Perennial Real Estate Holdings, which was about $1.17 billion, contributed 33% of the total investment volume in Q1 2015. There was also strong interest in mixed use properties in the first quarter. Total investment in mixed use properties grew from to $241 million in the previous quarter to $325 million in Q1 (Figure 7). In contrast, residential investment sales continued to decline, falling by 14.5% q-o-q to $856 million. In the private residential market, investors remained cautious with cooling measures remaining in place after the announcement of the National Budget. The main deal registered this quarter was the bulk purchase of 16 units in 111 Emerald Hill for $75 million. Figure 7 Investment sales, SGD bn 16 10 12 14 8 6 4 2 0 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Residential Office Industrial Retail Mixed Hotel Others Q1 2015 Separately, residential investments from Government Land Sales (GLS) Programme increased by 15% q-o-q to $781 million in the first quarter with the award of 4 residential sites. Despite the increase, the amount transacted in this quarter s GLS programme for residential properties was less than half of what had been sold in Q1 2014.
REITS, private funds and property companies remain active in local market Figure 8 Net Buyers in Q1 2015 (SGDbn) REITs and private funds have been active in the real estate market in Q1 2015 (Figure 8). The expiry of stamp duty concessions has not discouraged REITs from investing in the local market. Instead, the total investment volume made by REITs rose 4% q-o-q to $607 million. OUE H-REIT completed its purchase of Crowne Plaza Changi Airport and Crowne Plaza Changi Airport Extension for $495 million in this quarter. The extension is expected to be completed by the end of 2015, with both properties reportedly to yield 4.6% annually. Additionally, A-REIT completed its purchase of The Kendall for $112 million or $618 per sq ft. Property companies REITs Funds Corporates Public sector/government -2-1 0 1 2 Purchase Sell Due to the lax monetary policies in Europe and Asia, private funds have been very active in the real estate market. For instance, a fund managed by Phoenix Investors purchased 6 shop houses from K Line for $42.8 million. This worked out to be about $2155 per sq ft on a gross floor area basis. Additionally, property fund manager Pamfleet purchased Homestay Lodge, for $127 million. The dormitory has only 14 years left on the lease. Property companies continued to be active in Singapore in this quarter. The net purchases of property companies have increased from $530 million in Q4 2014 to $721 million in Q1 2015. Property companies were particularly active in the GLS programme this quarter, acquiring six sites. They also led consortiums to invest in some of the big ticket items like the AXA tower deal. With fewer sites offered in GLS programme and limited investment options in Singapore in the second half of the year, property developers are looking offshore for suitable investments in gateway cities such as London. Hotel Properties, through a joint venture, purchased two existing office buildings and a neighbouring residential building in London for about $616 million in March. Keppel Land also purchased a nine-storey freehold office block in London for $186 million in February. Retail Occupancy rate stays above 90% in 2014 Demand for retail space held firm in 2014, with occupancy rates in Orchard/Scotts Road, other city areas and suburban areas staying above 90%. In 2014, although islandwide occupancy rate fell marginally by 1.5 percentage points y-o-y, net absorption increased by 7.1% y-o-y to 1.67 million sq ft indicating healthy demand. With the addition of some 1.2 million sq ft of NLA projected to be launched in 2015, landlords are expected to face intense competition to achieve maximum occupancy. As a result, landlords are widening their options by exploring shorter-term leases and the concept of pop-up stores to manage transitional vacancies. Ion Orchard for instance, experimented with a shorter term lease of 3 months with Zalora s pop-up store from October 2014 to January 2015.
Limited retail space in Orchard/Scotts Road over the next 5 years Of the estimated 1.2 million sq ft of NLA to be injected into the market in 2015, 99% will be concentrated in the other city areas and suburban areas (Table 2 and Figure 9). In Orchard/Scotts Road, approximately 8,000 sq ft of NLA will be released in 2015 as compared to 407,000 sq ft in 2014. Projected supply of retail space within Orchard/Scotts Road is expected to be limited at 24,000 sq ft of NLA over the next 5 years. Resilience in rents observed in Q1 2015 The projected supply of retail space in the coming year has been reflected in the rents observed in this quarter. Islandwide, average rents largely remained the same q-o-q at $25.39 per sq ft in Q1 2015. Rents in the other city and suburban areas remained flat q-o-q at $17.98 per sq ft and $28.05 per sq ft respectively. Rents in the above-mentioned areas are expected to stay flat for the rest of the year. This is due to the large proportion (99%) of retail supply in the coming year as well as the maturing e-commerce sector. Reflecting the limited supply of retail spaces in the Orchard/Scotts Road area, average rents inched up marginally by 0.3% q-o-q to $30.13 per sq ft in Q1 2015 (Figure 10). Retailers become creative in view of falling shopper traffic and tenants sales In 2014, CapitaMall Trust reported a 0.9% y-o-y fall in its portfolio shopper traffic and a 1.9% y-o-y fall in its overall tenants sales. On a micro scale, CapitaMall s Fashion retailers and Shoes and Bags retailers recorded a 1.3% and 0.8% y-o-y decline in sales, respectively. Both declines were a reversal from the 1.3% (Fashion) and 9.4% (Shoes and Bags) increase reported in its 2013 financial results. The declining footfall and tenants sales observed reiterate the impact of e-commerce on the brick-and-mortar retailers. Apart from exploring shorter-term leases, these retailers are also tapping Table 2 Upcoming major retail projects Name of development Area Est NLA (sq ft) Est TOP Year Waterway Point Capitol Piazza Suburban Area Other City Area 370,000 133,000 2015 2015 A/A to existing Marina Square Complex Hillion Mall The Heart (Marina One) Other City Area Suburban Area Other City Area 150,000 168,000 140,000 2015 2016 2016 Figure 9 Retail development pipeline including projects on awarded GLS sites, sq ft (million) 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2015 2016 2017 2018 2019 Orchard/Scotts Road Other City Areas Suburban Areas Figure 10 Retail rental indices (Q1 2011=100) 115 110 105 100 95 90 85 Q4 2005 Q4 2006 Q4 2007 Source : URA, DTZ Research Q4 2008 Q4 2009 into the mobile market to take advantage of the rising smartphone penetration rate. In 2015, Myntra, a major Indian clothing e-store, announced the closure of its online store from May to focus on its mobile app. Q4 2010 Q4 2011 Q4 2012 Q4 2015 Q4 2015
Offices Limited supply in the CBD may be mitigated Some 519,000 sq ft (already 43% of the 1.2 million sq ft of the total 2015 pipeline) was added in Q1 with the completion of fringe CBD developments, South Beach Tower and The Prospex. With no completions in the CBD in Q1 and only about 131,000 sq ft in the CBD pipelines from the addition and alteration works of OUE Downtown and the Crown@Robinson projects, there will be a particularly pronounced shortage in the CBD. After the termination of Equity Plaza and GE Tower which removed 670,000 sq ft from the existing stock, the potential net supply for the whole of 2015 is estimated to be 530,000 sq ft, less than a third of that in 2014 (Table 3 and Figure 11). The CBD shortage in 2015 can be mitigated by about 181,000 sq ft of shadow space of which 38,000 sq ft will be released in the second half of the year. Another 328,000 sq ft of second hand space will also emanate from leases expiring in 2015, and 56% of this will occur in the second half of this year. The bulk of this space is in the Shenton Way/Robinson Road/Cecil Street area. Beyond the bottleneck in 2015, about 2.7 million sq ft of new space will be completed in the CBD between 2016 and 2017, including major developments like Marina One and Guoco Tower. Softer office demand in Q1 2015 Net office demand in Q1 fell by 81% q-o-q to 34,000 sq ft, the lowest since Q2 2009, possibly due to lower activity during the festive period in Q. Additionally, most of these take-ups comprised of smaller units of less than 10,000 sq ft. However the fall in demand could also be transitional in that many of the deals inked in Q1 2015 will only be captured in subsequent quarters when the companies move into their new offices. Average monthly gross rents in the CBD The supply crunch pushed average monthly gross rents in the CBD up by an average of 1.3% quarter-on-quarter (q-o-q). Much of this increase was Table 3 Upcoming office projects in 2015 Crown @ Robinson A/A at OUE Downtown 1 CT Hub 2 Figure 11 Office development pipeline including projects on awarded GLS sites from Q2, 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 Innovis/Synthesis/Kinesis 2015 2016 2017 2018 Marina Bay Raffles Place Decentralised areas Figure 12 Office rental indices (Q1 2011=100) 240 200 160 120 80 40 0 Q4 2006 Q4 2007 Q4 2008 Source : URA, DTZ Research Q4 2009 Raffles Place Q4 2010 Decentralised Decentralised Shenton Way/Robinson Rd/Cecil St CBD fringe Terminations Q4 2011 CBD CBD Decentralised Q4 2012 Q4 2014 204,000 101,000 Q4 2015 74,000 57,000 49,000 Q4 2016 Q4 2017 Shenton Way/Robinson Rd/Cecil St in Marina Bay where rents rose by 3.8% q-o-q to $13.75 per sq ft, whilst rents in Raffles Place held firm q-o-q at $10.80 per sq ft (Figure 12).
Decentralised areas as an alternative Average monthly gross rents in decentralized areas also registered q-o-q growth at 0.4% to $8.07 per sq ft in tandem with higher occupancy rates. For instance, both the Metropolis in Buona Vista and the office component in Galaxis were fully leased. The average monthly gross rent of $8 per sq ft in the decentralised areas was comparable to that in Shenton Way/Robinson Road/Cecil Street. Nevertheless, the flight to decentralized areas is likely to moderate in subsequent quarters. Firms are still attracted to the CBD and fringe areas for convenience and brand positioning for the recruitment of top talent. With top quality office space in the CBD coming on board in 2016 and 2017, firms will have less incentive to locate into decentralized areas. With limited supply options in the CBD this year, businesses may consider office space in decentralised areas as an alternative. However, firms are only willing to relocate if these decentralised buildings have good accessibility and the necessary amenities to support and attract office workers.
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