_Knight Frank Commentary (URA Real Estate Stats - Q1 2025)
Residential
The homebuyer activity in October and November 2024 continued into Q1 2025, and resulted in the URA All Residential Price Index increasing 0.8% q-o-q and 3.3% y-o-y, based on data announced by URA today. However, this increase in Q1 2025 was much more moderate compared to the 2.3% q-o-q and 3.9% y-o-y increases in Q4 2024. Price benchmarks in several locations in the Rest of Central Region (RCR) and Outside Central Region (OCR) stabilised in 2024 and continues to stabilise in early 2025, with signs of equilibrium at the start of the new year.
During the quarter, homebuyers remained active at showflats evidenced by healthy take up at prominent launches in established residential towns where there are ample amenities, or else, in areas with a compelling growth story such as Tengah. Homebuyer demand continues to be supported by strong household balance sheets that remain on a path of steadily improving affluence, a low unemployment rate, and liquid wealth that is passed down from earlier generations of Singaporeans that have benefitted from asset appreciation.
In the Core Central Region (CCR), prices grew 0.8% q-o-q and 1.9% y-o-y even though much of this segment of the market remained quiet, reined in by the 60% Additional Buyer’s Stamp Duty (ABSD) rate for foreigners. The prime market in the CCR traditionally attracts wealthy foreign families parking their funds in a safe and stable geography. In the current climate, buyers in the CCR broadly comprise high-net-worth Singaporeans, permanent residents and new citizens who have been selectively acquiring some of these luxury properties.
In the RCR, prices increased 1.7% q-o-q and 7.3% y-o-y, the highest among the three regions in Q1 2025. This was mainly due to the launch of The Orie in Toa Payoh, an area that has not had a new launch in recent years, achieving a reported average price of S$2,704 psf for the 668 units (or about 86%) sold in the first weekend.
The stabilisation of prices was more evident in the OCR, which grew by a slight 0.3% q-o-q in Q1 2025, even though buyer demand remained strong with take-up rates (based on reported sales) of 93%, 87%, 65% and 61% for Lentor Central Residences (total of 477 units), Parktown Residence (total of 1,193 units), Elta (total of 501 unit) and Bagnall Haus (total of 113 units) respectively on the launch weekends of these projects.
In the landed market, landed home prices increased by a marginal 0.4% q-o-q in Q1 2025, after a slight decline of 0.1% q-o-q in Q4 2024. Demand and prices for landed houses remains stable as housing aspirations for these homes at the top of the Singapore housing pyramid were firm against generally limited inventory for sale.
An overall annual increase of 0.8% in Q1 2025 shows signs of price stabilisation. At the same time in the public housing market, the HDB Resale Index increased 1.6% q-o-q in the same period (based on HDB data released today). Despite the unfolding global political and economic uncertainty, so long as unemployment remains low, retrenchments contained and salaries intact, domestic demand in the housing market can be supported as household balance sheets are healthy. Prices remain on track to grow at a moderate between 3% and 5% in 2025, similar to 2024. Nevertheless, the unfolding uncertainty triggered by the US-led tariff war, is likely to slow transaction volume as buyers and sellers move into a state of pause until some clarity emerges from the global confusion.
The URA rental index for private homes grew by a marginal 0.4% q-o-q in Q1 2025, after remaining unchanged in Q4 2024. A higher proportion of vacant inventory remained among smaller units of one- and two-bedrooms compared to family-sized three- and four-bedrooms options. As such, landlords of smaller units may need to adjust their rental expectations in order to keep their assets occupied. With demand and supply now in balance in the leasing market, rental growth is expected to be moderate between 1% and 3% in 2025, supported by renewals at large and continued interest in family-sized inventory.
Office
The office rental index increased by a slight 0.3% q-o-q in Q1 2025, after a 0.9% q-o-q decline in Q4 2024. On a yearly basis, growth of office rents was 2.0% in Q1 2025, moderating from the 5.8% y-o-y growth in Q1 2024. The slight increase was backed by occupiers renewing leases at existing premises coupled with some flight-to-quality movement.
Occupancy levels island wide in Q1 2025 was at 88.3%, a decrease of 1.1 percentage points (pp) from the 89.4% recorded in Q4 2024, but 2.1 pp lower than the 90.4% recorded in the same period a year ago. The easing in occupancy level could be attributed to the newly completed Keppel South Central, with a reported 50% of the space committed or under negotiation. The occupancies in the CBD were generally healthy as landlords continued to prioritise building occupancy amid global uncertainty.
In 2025, most major global corporations that are headquartered in Singapore offices are likely to adopt a wait-and-see approach until there is more clarity before deciding on expanding or relocating their workplaces, in light of the unfolding trade war and the growing confusion in the global economy. Although some businesses are expected to relocate in measured flight-to-quality moves when leases expire, these might now be put on hold as a result of the emerging global trade war. With the above dynamics in play, Knight Frank expects prime rental growth to range between -1% and 2% for the whole of 2025.
Retail
The retail operating environment remains challenging due to prevailing high labour, occupational and material costs. Rents of retail space fell by 0.5% q-o-q but grew 0.4% y-o-y, with occupancy levels also declining to 93.2% in Q1 2025 from 93.8% in the previous quarter.
The unrelenting setup of food and beverage (F&B) businesses as a result of low barriers to entry, might be taking a toll on the retail market. In 2024, according to the Accounting and Corporate Regulatory Authority (ACRA), a total of 3,047 F&B businesses shut down, the highest annual number since 2005. Examples of closures in Q1 2025 included Eggslut, Manhattan Fish Market, Prata Wala, Burger & Lobster, while Haidilao, a hotpot household name closed two outlets. However, perhaps what is more telling was the total of 3,793 F&B formations in the same year, the second highest on record from 1990 with the record high being 3,934 openings in 2021. Further highlighting the increasingly overweight food arena, the number of licensed food shops (referring to coffeeshops (main operator licence), restaurants, eateries, food catering businesses and private markets) was at an all-time high of 22,747 in 2023, based on the latest available data from the Singapore Food Agency (SFA).
Despite the high number of exits and closures, many local and international F&B brands continue to set up shop. The result is a survival of the fittest climate, where those with deepest pockets remain standing the longest, and homogeneous concepts with little differentiation continue to both blossom and wither at the same time. With no apparent mechanism to control supply, the signs of an F&B overgrowth in Singapore are becoming harder to ignore.
The retail sector remains challenging with a persistent high-cost environment and market uncertainty. In addition, the high volume of F&B businesses is starting to do more harm than good for operators, diners and the entire food business landscape. In a small market as Singapore, the limited pie to share among all F&B businesses will make it harder for operators to remain profitable, given current demand levels. Measures taken sooner rather than later can alleviate some of the ailing symptoms, such as the closure of several Michelin- starred restaurants, and ensure that the sector remains sustainable for local and international brands to stay and grow.
Notwithstanding the cost pressures in the retail sector, the global outlook also took a turn for the worse with US President Trump announcing sweeping tariffs that have pushed overall business sentiment onto the backfoot. For a small trading nation as Singapore, this might have far-reaching effects that could undermine the delicate 1% to 3% growth forecast of prime retail rents in 2025.