_Knight Frank Commentary - URA Real Estate Stats - Q1 2022
Residential
Private home sales in Q1 2022 amounted to a total of 1,825 units in the primary market and 3,518 in the secondary market (sub-sale and resale). Therefore, compared to the previous quarter in Q4 2021, new sale volume dropped by 39.5% from 3,018 transactions, while secondary sales volume fell 28.3% from 4,907 units in the same period. The fall in overall sale volume was mainly due to the cooling measures announced in December 2021 and the tentativeness of developers to launch new projects while the market was in a state of pause with the typical, even traditional watch-and-wait reaction that follows a cooling measure announcement. Together with the global uncertainties that resulted from the Russia-Ukraine conflict and the lockdowns in China, the private residential market in Q1 2022 was characterised by subdued activity even though undercurrents of owner-occupier homebuyer and upgrader demand remain strong should buyers be able to find suitable homes.
As such, the URA Private Residential Price Index was fairly stunted with a slight increase of only 0.7% q-o-q, compared to the 5.0% q-o-q increase in Q4 2021. The fact that the URA All Residential Price Index even showed an increment in Q1 2022 at all, was contributed by the landed market which appears to be impervious to the cooling measures. While the overall Non-landed Price Index fell 0.3% q-o-q, the URA Price Index for landed properties grew by 4.2% q-o-q in Q1 2022. Prices in the landed home market continued to climb with pace, driven by the launch and sales performance of Belgravia Ace in January as well as sales in the resale market. The stock of landed properties in Singapore has stagnated around 73,000 plus units in the last four years and is not likely to grow substantially in future. Landed homes in Singapore has been one of the top-performing asset classes in the real estate market due to its fixed supply. The landed residential market had performed well in 2021, establishing an all-time high sales transaction value with the price index for landed homes increasing 13.3% in 2021. And it looks like, the trend for landed homes will continue in 2022. According to Knight Frank’s Global Buyer Survey 2021, Singapore homebuyers showed a preference for larger indoor and outdoor space. Combined with the limited availability of landed homes, and with foreign ultra-high-net-worth families willing to pay rental premiums for such properties, the landed residential market will continue to draw strong interest in 2022.
However, in the non-landed home market, prices fell in the Core Central Region (CCR) and Rest of Central Region (RCR) in Q1 2022. The luxury class of private homes, generally characterised by the non-landed price index for the CCR, shrank by 0.1% q-o-q while prices in the RCR decreased by 2.7%. The Outside Central Region (OCR) did register positive growth of 2.2%, suggesting continuing upgrader demand by HDB homeowners who have completed their five-year Minimum Occupation Period (MOP). In Q2 2022, fundamental buyer demand is expected to re-establish itself, especially when a substantially sized project that captures the public imagination is launched. For example, the North Gaia Executive Condominium with 616 units, the 407-unit Piccadilly Grand at Northumberland Road, and the 298-unit LIV@MB at Arthur Road. Owner occupiers are generally unaffected by the Additional Buyer’s Stamp Duty (ABSD) revisions and will comprise many of the buyers in the remainder of 2022.
Therefore, overall private residential prices are projected to increase around 1% to 3% in 2022 considering the cooling measures and interest rate hikes. New sale volume could reach around 8,000 to 9,000 units with fewer launches in the pipeline, while 16,000 to 19,000 units might be sold in the resale market. This would reflect a total private home sales volume of about 24,000 to 28,000 units in 2022, some 16.6% to 28.5% less compared to the robust 33,557 units chalked up in 2021.
The URA rental index for private residential homes increased 4.2% q-o-q in Q1 2022, after expanding by 9.9% for the whole of last year. Tenants will likely maintain their leases amid the uncertainties of travel despite the implementation of the Vaccinated Travel Framework (VTF) and greater open borders in 2022. Overall rents in the private home market could rise about 7% to 9% for the whole of 2022, as rental demand remains ever-growing, contributed by buyers who have not found replacement homes. Higher property maintenance charges and inflationary pressures also have a knock-on impact on rents, as landlords, who wield greater negotiating power, are transferring the increased costs to tenants. With the looming interest rate increases, rising rents will likely continue to offset increases in monthly instalments.
Office
The office rental index increased by 1.6% q-o-q in Q1 2022, an improvement from the 0.9% growth in the previous quarter. With office rents having bottomed out in 2021, moderate rental increments can be expected to characterise the year 2022, as corporates shift from a wait-and-see stance to actively rationalising their space requirements. Quality office space will become increasingly paramount, as employees now expect work environments to be more conducive than homes in order to induce a return to physical offices. Technology players, non-bank financial services as well as international professional services will continue to fill good quality spaces in the CBD. Chinese tech firms continued their expansion to Singapore given regulatory curbs and mounting tensions from other key markets. In addition, according to a March 2022 report by the European Chamber of Commerce in Hong Kong, almost half of the companies (49%) surveyed were planning to either fully or partially relocate from the country due to geopolitical tensions and stringent COVID-19 measures. Singapore is expected to be a key beneficiary and was identified as the greatest competitive threat to Hong Kong by 80% of the respondents. Some professionals and companies are likely to relocate to Singapore, undergirding office demand.
While technology companies are embracing remote working models to attract globally dispersed talents, the need for physical hubs with supporting digital infrastructure is not diminished. Some 39% of global tech leaders in the 2021 KPMG Technology Industry Survey believe physical hubs to be vital for the coalescence of ideas, and 92% are convinced that offices will exist at least for the next four years. Singapore, which topped the KPMG’s ranking of leading technology innovation hubs, is primed to attract tech firms to establish offices here.
Even though the Russia-Ukraine conflict has brought about a new dimension of uncertainty, the recent significant lifting of COVID-19 curbs from 29 March onwards is expected to provide a much welcome boost. For 2022, GDP growth is forecasted to be in the range of 3% to 5%. The ManpowerGroup Outlook Survey Q2 2022 revealed that 42% of Singaporean companies expect to increase their headcount, led by IT, Technology, Telecoms, Communications and Media with the strongest outlook at 38%. Combined with the limited upcoming supply of CBD Grade A offices and the government not expected to release land sites for office use in the short-term, office leasing activity is expected to remain firm especially as up to 75% of employees are now allowed to return to the workplace. Going forward, Knight Frank maintains a forecast of 3% to 5% growth in rents for the whole of 2022.
On the office sales front, the office price index turned around quite dramatically increasing 4.4% in Q1 2022 after falling by 1.8% q-o-q in Q4 2021 and decreasing by 5.8% y-o-y in 2021. There appears to be demand for strata office space from private wealth and family offices and small and medium sized enterprises (SMEs) looking to right-size space requirements in the technologically enhanced post-pandemic era. As such, demand for strata office units can be expected to grow in 2022 given the lack of new strata office supply in the medium-term, some spillover investor interest from the private residential market as a result of the cooling measures announced on 15 December 2021, and the recent restriction on strata subdivision in certain corridors of the CBD. With this latest restriction, existing strata-titled commercial buildings in the Central Area would become more popular among certain types of users. Owners of strata office have the flexibility to choose whether they would prefer to be landlords or occupiers as the economic climate changes from one cycle to the next. Unlike residential investment properties, strata office as commercial properties do not incur Additional Buyers Stamp Duty (ABSD). Small enterprises and family businesses are able to better manage the control of their strata space. With flexible work arrangements, unutilised space can be sub-let for supplementary income during periods of economic downturn and taken back during periods of organic company growth. As an investment vehicle, a strata office unit or even a combination of units is relatively more affordable than an entire building. Therefore, investment opportunities are open to smaller investors with more modest appetites. For these reasons, interest in existing good quality strata office space in the Central Area is expected to grow in 2022.
Retail
In the first quarter, the retail price and rental indices reported marginal declines of 1.4% and 0.4% respectively on a quarterly basis. On a yearly basis, prices narrowed by 2.5% and rentals decreased by 2.9%. The slight deceleration in the indices could have been attributed by the amount of occupied retail space decreasing by 129,167 sf in Q1 2022, a reversal from the preceding increase of 269,098 sf in Q4 2021. Business sentiments among retailers were dampened by the news of external headwinds such as the ongoing Russia-Ukraine war, lockdowns in Mainland China as well as the disrupted global supply chains, plaguing some firms with doubts on whether to risk expanding their businesses especially with rising inflation already affecting costs.
In Q1 2022, the spike in COVID-19 infections that delayed the planned easing of social restrictions to the end of the quarter also weighed on the retail sector. While workplace capacity was increased to 50% from January 2022 onwards, the anticipated footfall from lunchtime crowds within the Central Area was compromised by the swell in Omicron infections as many had to isolate at home. However, once the most recent spike in COVID-19 cases simmered down, various regions of Singapore, particularly the CBD, started to get busy again. Although some firms have adopted remote work practices, others have gradually returned to the office. The higher workplace capacity during the first three months of the year helped to mitigate severe declines in the rental index, as Singapore’s single-minded drive towards living with COVID-19 sustained shopper volumes.
Despite the reduction in the uptake of retail space in Q1, brands retailing sports accessories continued to leverage on the rising shift of consumers towards health and wellness. Decathlon, an international sports retailer with 14 existing physical stores in Singapore, plans to expand their footprint to 37 stores by introducing additional locations over the next few years. Adidas and Puma have also exercised further steps to expand market share. Earlier this year, Adidas opened its largest and first brand centre “Homeground” in Singapore. The three-storey store located at Knightsbridge along Orchard Road offers a range of exclusive experiences for the customer – from customisable athleisure to “instagrammable” photo spots. Riding on the fitness wave, Puma will also be launching a flagship store spanning 7,100 sf at 313@Somerset in June 2022. This is in line with the mall’s efforts to rejuvenate its trade mix and create vibrancy to attract youth. Looking ahead, as Singapore moves towards a new era of endemic living, interest in the health and wellness industry is likely to stay. An increasingly health-conscious population coupled with flexible work arrangements will encourage more consumers to maintain an active lifestyle which will in turn fuel demand for sports, recreation and wellness retail.
Moving forward, the compelling new COVID-19 measures enacted from 29 March 2022 onwards will herald cheer for retailers in Singapore. Since the outbreak of the pandemic, dark clouds are finally receding after two years and the retail sector has reached a turning point. The raised dining and gathering group sizes from five to 10 and increased workplace capacity to 75%, as well as the introduction of the Vaccinated Travel Framework are set to increase activity in all retail destinations (especially the Central Area) and will invite more international travellers into Singapore as quarantine is no longer required. Additionally, nightlife retailers have reason to be optimistic after being permitted to fully open their doors for business starting 19 April. Singapore has shown the world its ability to mitigate and overcome challenges wrought by the pandemic. This has solidified its reputation for stability, and should serve as a beacon of hope for retailers. As such in 2022, more international brands could increasingly look towards Singapore as a destination to establish or expand their presence. Barring the emergence of new variants that threaten the nation’s road to recovery, retail rents should bottom out in the second quarter of the year before improving in the latter half of 2022, supporting the projected growth of prime retail rents between 2% and 4% for the whole of the year, given the new optimism.