Economic rebound in 2021 expected to lift some property sectors
By Charlene Chin
/ EdgeProp Singapore |
SINGAPORE (EDGEPROP) - An economic rebound expected in 2021 should lift most property sectors in Singapore, in particular the residential, office and industrial sectors, says Colliers International in its market outlook report for the year. This is in line with the broader market perception, as mid-sized businesses in the city-state are also optimistic about an economic recovery over the next 12 months, according to a survey of mid-market businesses by Grant Thornton.
In Singapore’s residential market, more land sales are expected to happen this year, as developers seek to replenish their supply pipeline (Credit: Albert Chua/ The Edge Singapore)
In the residential market, consultants expect more land sales to happen this year, with developers seeking to replenish their supply pipeline. “With strong developer sales and limited land sales in 2020, unsold inventory has come off to 27,000 units, close to the 24,000 units [that was a] trigger point for the collective sales back in 2017-2018,” says Colliers.
Developers, emboldened by the residential market’s performance in 2020, are also likely to capitalise on the sales momentum to clear their remaining project inventory this year, highlights CBRE in a report. “There is also more certainty and clarity as the Covid-19 pandemic situation seems to be under control,” it adds.
Buying sentiment to remain strong, smaller units drive demand
CBRE estimates that there are some 30 residential projects comprising 7,940 units for sale in 2021. To that end, “buying sentiment is expected to remain strong and help support demand for upcoming new launches”, it says.
This year, 39.4% of units launched are expected to be in the Core Central Region (CCR) while 38.4% of units launched will be in the Rest of Central Region (RCR), which tend to be of a higher quantum, observes CBRE. Meanwhile, locations in the Outside Central Region (OCR) will mainly stem from Government Land Sales (GLS) supply and will likely make their way into the market in 2H2021.
It observes that the market continues to be driven by the purchase of smaller units, although “there seems to be growing interest in larger units with higher quantum as well”. In 1H2020, transactions of $1.5 million to $2 million accounted for 20.8% of all new sales, but this increased to 22.9% in 2H2020.
CBRE believes that residential sales will be driven by local demand through the year, although “foreign investors are likely to return as Singapore’s ability to manage the pandemic well will further lend credence to it being a stable city to invest in”.
Despite the economic volatilities last year, the residential market performed well amid a recession and a pandemic-led lockdown. In 2020, developers sold a total of 9,982 private residential units, surpassing 2019’s volume of 9,912 units by 0.7% y-o-y. Meanwhile, 10,729 units were transacted in the resale market, 19.9% higher than in 2019.
CBRE attributes this to “the healthy take-up of projects that are well located and relatively affordable, and the strengthening purchasing power of investors from leveraging low interest rates”.
Logistics a ‘star performer’; warehouse rents to see growth
Amid stockpiling needs and an e-commerce boom, JLL describes the logistics sector as the “star performer” in 2020. Net absorption for logistics and warehouse space in 2020 was nearly three times that in 2019, thereby driving down vacancy rate from 12.0% at end-2019 to 10.1% at end-2020, it observes in a report. This in turn provided support for rents to hold relatively firm in 2020, it adds.
With e-commerce adoption driven by the pandemic, Colliers expects warehouse rents to grow at a five-year compounded annual growth rate from 2020 to 2025. Meanwhile, CBRE forecasts a 0.7% y-o-y growth for prime logistics rents in 2021, describing the submarket as one with “stronger resilience” and one that will “continue to see stable demand and command higher rents due to their higher specifications”.
It adds: “Cold chain logistics is poised to be an additional demand driver, as food logistics continues to be a key logistics demand driver. In addition, there may be opportunities for specialised cold chain logistics as the government positions Singapore as a vaccine distribution hub.”
The overall warehouse supply pipeline remains subdued, tapering from previous years. This is also exacerbated by construction delays caused by the spread of Covid-19. As at 3Q2020, the new warehouse supply per annum from 2020 to 2023 is projected at 2.03 million sq ft, lower than the actual 4.42 million sq ft from 2010 to 2019.
As companies remain unsure about their long-term office strategy, enterprise interest in flexible workspaces has increased as firms seek shorter-term commitments (Credit: Samuel Isaac Chua/ The Edge Singapore)
Hybrid office for the future
In the office sector, CBRE expects the focus to be on portfolio agility as businesses incorporate remote working into their working arrangements. In a survey conducted by the research consultancy, it observed that more firms have indicated a shift in attitude towards incorporating teleworking as an option for the workforce, with 66% of survey respondents keen on allowing remote working for no more than one or two days per week.
As companies remain unsure about their long-term office strategy, enterprise interest in flexible workspaces has increased as firms seek shorter-term commitments. Colliers therefore expects the growth in flexible workspaces to continue. After showing a growth of 3% in 2020, the space taken up by flexible workplace players will grow another 3% in 2021, it forecasts.
Throughout last year, not all of the offices have been dealt the same cards. The office market is two-tiered, says CBRE, with occupiers showing a stronger preference for tech-enabled, prime office buildings as compared to ageing offices with older specifications.
Most of the negative net absorption in the office market last year stemmed from the Grade-B market, which recorded –0.79 million sq ft. Conversely, the Grade-A (Core CBD) market registered 0.51 million sq ft of positive net absorption last year, which was largely supported by the strong take-up at 79 Robinson Road — the sole Grade-A completion in 2020, it notes.
Both Colliers and CBRE expect office rents to improve in 2H2021. “Market dynamics are conducive for an office-sector recovery towards the end of 2021, with demand driven by the technology sector and overall business recovery,” says Colliers.
But the improvement in rents will not be uniform across all office buildings, cautions CBRE. “The prime office buildings are expected to benefit first, as occupiers leverage the current downturn to ride on the ‘flight to quality’ strategy. However, this would lead to an increasing vacancy in the older office stock, and prompt landlords to be more flexible in incentives and negotiations,” it says.
An uneven recovery is expected in the retail sector, with the suburban market showing the most resilience (Credit: Albert Chua/ The Edge Singapore)
Suburban retail more resilient
With travel restrictions still in place, recovery in the retail market is likely to be a long-drawn process. After falling by 8.6% y-o-y in 2020, average prime retail rents are expected to stabilise over the course of 2021, and consolidations of underperforming stores are set to continue this year, notes CBRE.
An uneven recovery is expected in the retail sector. The suburban market will continue to be the most resilient, says CBRE, while retail malls in the fringe and CBD locations are likely to see a slight recovery as footfall from the working population improves.
As retailers adapt to the new retail environment, the research consultancy expects leasing demand to pick up over the course of this year. Demand is expected to be driven by F&B and essential stores like supermarkets and beauty and wellness, with a caveat that “their concepts will have to be unique yet relevant in today’s context”.
“Underperforming locations which suffer from higher vacancies could benefit from potential rental growth if landlords strategically upgrade their assets or reposition their tenant mix to be in line with changing consumption trends,” it adds.
With landlords forced to adopt a flexible stance towards rents and terms, tenants may have a stronger bargaining power, says CBRE.
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