_URA Real Estate Stats Q4 2022 Commentary
Residential
Private home sales in Q4 2022 amounted to a total of a very subdued 690 units in the primary market and 2,898 in the secondary market (sub-sale and resale). This translated to an annual total of 7,099 new sales and 14,791 secondary sales, and an overall total of 21,890 private homes. Compared to the 33,557 private residential units sold in 2021, this represented a decrease of 34.8%. It was not for a lack of homebuyer demand that transaction volume shrank, but rather the lack of saleable inventory limited sales. With the lack of available inventory for sale, many potential buyers were observed to have indulged in revenge travel to make up for the enforced cross border restrictions during the COVID-19 years in the later months of 2022.
The URA All Residential Price Index continued to rise, recording an increase of 0.4% q-o-q in Q4 2022 and a total of 8.6% for the whole year. This increase was less than the 10.6% annual gain in the URA private residential price index in 2021. In addition to the handful of notable new launches in Q4 2022, the looming global recession and high interest rate environment also contributed to transaction activities slowing down towards the year-end, as the lack of listings compelled homebuyers to adopt a watch-and-wait posture until more units become available.
In the landed housing market, prices of landed homes continued to rise only held back by sellers’ reluctance to place their homes on the market. The URA price index for landed homes rose a further 0.6% q-o-q in Q4 2022, bringing the bringing the total increase to 9.6% for the year, as a result of scarcity of these limited homes in high-rise Singapore. And even though buyers are willing to offer decent price premiums to incentivise landed homeowners to sell, most were decidedly averse, with some deterred by the 15-month wait-out for downgraders looking to purchase HDB flats.
The lack of saleable inventory continues to crimp transaction activity with homeowners hesitant to sell their homes without securing a new one to occupy, even though price premiums were offered. However, come 2023, some 34 new projects could possibly launch island-wide consisting of around 12,000 units that will bring some relief to the undersupply situation and provide homebuyers with more product choices in a buffet spread of locations. Nonetheless, the greater volume and variety of new private stock comes at a time of economic uncertainty, employee layoffs in the technology sector, continued rising interest rates as well as the increased cost of consumption. Therefore in 2023, demand might turn more conservative with 7,000 to 8,000 new sales and an estimated overall private residential transaction volume ranging between 21,000 and 25,000 units. In view of the above, private home prices are projected to grow by a more moderate 5% to 7% for the whole of 2023, lower than the 8.6% increase in 2022.
The URA rental index for private homes increased by 7.4% q-o-q in Q4 2022 culminating in a total of 29.7% for the entire year. One would have to go back to 2007 to find an annual rental increase of such proportions, when the rental index surged by 41.2% that year. This was a few years after the announcement of the development of the two integrated resorts and before the onset of the Global Financial Crisis. With ongoing geopolitical tensions in various parts of Asia and the world, Singapore continues to offer foreign professionals and executives a stable environment in which to live and work, characterised by connectivity to quality schools, retail amenities and modern workplaces. In addition, locals waiting for their new homes to complete also added to the ongoing demand for rental accommodation. Even though some 17,000 plus new private homes (excluding Executive Condominiums) are slated for completion in 2023, the leasing market is unlikely to cool off immediately in 2023 due to the persistent leasing demand in the private residential market. Private home downgraders affected by the latest cooling measures would also put pressure on the leasing market.
Office
The office rental index increased by 5.1% q-o-q in Q4 2022, following the 2.1% q-o-q growth in Q3 2022. Overall, the office rental index has surged by 11.7% y-o-y in 2022. This increase can be attributed to businesses actively seeking quality office space throughout the year, in order to support the full resumption of functions to pre-pandemic levels and to meet the operational needs of a normalising economy. In Q4 2022, occupancy levels increased to 88.7% in Q4 2022 from 88.3% in Q3, supported by steady demand for traditional as well as co-working space with net new demand for the year totalling 473,612 sf, the first year since 2020 at the onset of the pandemic that office absorption was reported to be in positive territory. As at Q4 2022, the office sector remains a landlord’s market, despite the troubles in the tech sector as well as the prevailing economic pessimism.
The robust hiring activity recorded in Q2 and Q3 2022 on the back of easing pandemic restrictions took a turn in Q4 with several technology companies announcing employee layoffs both locally and globally. Despite this, the government has just reported that non-technology companies such as those in the banking and finance, hospitality, logistics and retail sectors have begun to tap these talents. As Singapore continues to position as an international hub with established sophisticated financial and legal structures, businesses on the growth path are still looking to expand headcount, albeit cautiously.
Slower growth of 0.5% to 2.5% is expected in 2023 caused by inflation as well as volatility in the technology sector. Furthermore, the spillover of the downside risk of an economic slowdown may see some businesses turning conservative and right-size their current office footprints. However, demand in the year ahead is likely to be sustained by corporates shifting business functions from other parts of Asia with Singapore as a flight-to-safety destination as uncertainty grows. International firms poised to gain from the receding pandemic in growth regions such as South-East Asia are also looking to set up or expand in the city-state from which to reach the steadily growing middle class in these countries. With these sources of demand and with IOI Central Boulevard Towers the only substantial new office development completing in the CBD next year, rents are likely to increase moderately by around 3% for the whole of 2023, barring any further substantial pre-termination or reduction of space from technology companies.
Retail
In Q4 2022, the retail rental index decreased by 1.1% q-o-q and 2.4% y-o-y. The URA retail rental index has now fallen for three years or 12 consecutive quarters (a period between Q1 2020 and Q4 2022), cumulating in a 22.4% decrease from Q4 2019. Despite the fall in the retail rental index, the retail sector is in a much better place than it was a year ago. Year 2022 represented a pivotal easing of pandemic restrictions such that retailers and F&B operators could begin to gear up operations with pre-pandemic normalcy in view.
Despite the retail rental index, the mood has changed drastically from a year ago, as net take-up of retail space increased by 710,417 sf in Q4, growing by 990,279 sf for the whole of 2022. Shopper traffic and consumption by locals as well as tourists who have returned with the lifting of travel curbs, fuelled demand for retail space, driving new set ups or expansion in existing footprints. As a result, the already healthy occupancy levels rose from 92.2% in Q3 2022 to 92.9% by end-2022, having increased 1.0 percentage point from a year ago. Shopper crowds, street activities, public events, vibrancy and a general buzz returned to the prime Orchard Road shopping belt, signalling that the worst of the pandemic is past. Especially so, in the holiday period during the final months of 2022.
Knight Frank’s tracking of prime retail rents (retail spaces between 350 sf and 1,500 sf with the best frontage, connectivity, footfall and accessibility in a mall, typically located on the ground level and/or the basement level of a retail mall that is linked to an MRT station or bus interchange) island-wide averaged S$26.10 psf per month, pointing to a 1.7% q-o-q increase in Q4 2022, and an overall 2.6% growth for the year. With the world generally opening up and workers brought back to the office throughout 2022, it was the Orchard area that recorded the highest increase of 3.1% y-o-y to S$29.10 psf per month in Q4 2022, followed by the Marina Centre, City Hall and Bugis regions with rents up 2.6% y-o-y at S$23.90 psf per month in the fourth quarter, as a result of the steady flow of international visitors.
The retail sector endured and has come through an extremely difficult time of unprecedented challenge, only starting to gain traction from the removal of measures from Q2 2022 onwards. And even with the worsening of economic conditions, as well as the impact to domestic consumption due to the increase in Goods and Services Tax (GST) and rising labour costs, the retail sector is nonetheless in a much better position now than it was under severely restrictive trading conditions while in the throes of the pandemic. So long as there are no size limits to gatherings and quarantine requirements for cross border arrivals, prime rents of retail space are likely to grow between 3% and 5% for the whole of 2023, with the prime shopping belt Orchard Road leading the recovery.