Q4 2023 Real Estate Statistics from URA

Residential

The imbalance of robust demand overwhelming an under supplied market has been rectified by the end of 2023, with the completion of about 21,300 private residential units in the year. This was the highest annual supply completion since 2016. And although the URA All Residential Price Index increased 2.8% q-o-q and 6.8% y-o-y, price growth has been tamed into moderation, and stabilisation should characterise the private home market in 2024.

Demand for private housing is likely to be conservative in 2024 with new sales ranging between 7,000 and 9,000.

There might be 15,000 to 18,000 private home sales overall for the whole year 2024, with private home prices projected to grow by a more moderate 3% to 5%, against the 6.8% increase in 2023. The continued incoming supply of private homes would lead to softer price growth in 2024.

However, prices in the new launch market will remain elevated due to committed land and construction costs. This might result in two-tier pricing with the gap between the primary and secondary market widening.

Although experienced and savvy investors familiar with Singapore’s private residential scene, will remain nimble, on the lookout for residential opportunities in popular areas where new supply has been limited, the growing expectations of interest rate cuts would likely cause some potential homebuyers to wait until the cost of borrowing comes down before purchasing homes.

Non-landed homes in the prime locale of the Core Central Region (CCR) lagged behind with an annual growth of a mere 1.9% compared to the increase of 3.1% in the Rest of Central Region (RCR) and a very substantial 13.7% in the Outside Central Region (OCR) in course of the whole year.  

The muted price growth in the CCR is largely attributed to the overall increase in Additional Buyer’s Stamp Duty (ABSD) rates and the doubling of the same for foreigner homebuyers, which came to effect at end-April 2023. Coupled with a mismatch in price expectations between buyers and sellers, sales volume for luxury non-landed homes dropped significantly with ABSD effectively cooling the high-end market.

In the year ahead, prime non-landed home prices are unlikely to increase in any significant fashion and might even record marginal declines as premiums continue to be eroded.

The majority of new launches next year in the prime areas are expected to be in the Downtown Core, and given the current lack of demand drivers for this market segment, price movement is expected to be flat between -1% and 2% in 2024, most likely at the negative end of the range.

Demand for landed homes in high-rise Singapore continues to be firmly supported as prices increased 4.6% q-o-q with an increase of 8.0% for the whole year.

Potential homebuyers remain on the lookout for landed homes due to lifestyle preferences for larger indoor and outdoor spaces.

Evergreen demand for freehold landed homes will be supported in 2024 by the aspirations of Singaporeans, with homebuyers willing to move out of locations that are familiar to them in search of such properties. However, the main obstacle to deals being successfully concluded will be the limited inventory of saleable stock.

The era of aggressive rising rents that characterised the private home leasing market in 2022 is over. The URA rental index for private homes fell 2.1% q-o-q resulting in an overall increase of 8.7% in 2023, significantly less than the 29.7% gain in 2022.

The return of construction schedules to normalcy led to more private and public flats completed throughout the year, and this in turn caused more tenants to exit the leasing market.

With new completions catching up and perhaps outpacing demand for rental homes in 2024, rents in the leasing market is no longer expected to increase, but the balance of power will shift to tenants with an overall rental decrease of between 5% and 7% in the year ahead.

Office

The office rental index increased 0.3% q-o-q in Q4 2023, moderating from the 4.9% q-o-q growth in Q3 2023. On a full year basis, rents rose 13.1%, higher than the 11.7% expansion registered a year ago.

The office leasing market was more active in early 2023, but activity eased in the second half as firms prioritised business continuity and operational stability with many electing to renew instead of relocating or expanding.

Even though the economic outlook for 2024 is expected to be better, this cautious optimism hangs in the balance with continued geo-political tensions and the risk of an escalation of military conflict in the Middle East.

On the domestic front, the office market remains quiet early into 2024, dogged with headlines of retrenchment news from the technology and media sectors.

With the expected completions of IOI Central Boulevard Towers and Keppel South Central in the CBD in 2024, any major movement of large space users into these new builds can result in decanted spaces that will rein in overall rental growth. With most office occupiers likely to remain cautious in expanding, Knight Frank expects rents to grow more moderately between 1% and 3% for the whole of 2024. The slight growth in rents in 2024, notwithstanding the infusion of supply, is due to most quality buildings (especially in the CBD) currently enjoying tight occupancies.

Islandwide occupancy tightened just a bit more towards the end of the year, increasing from 90.0% in Q3 2023 to 90.1% in Q4 2023.

The office price index contracted 5.9% q-o-q in Q4 2023, in contrast to the marginal 0.8% gain in the previous quarter. In the full year, prices decreased 4.2%, following the decline of 0.1% in 2022.

However, with interest rates, core inflation and other economic indicators expected to stabilise in the first half of 2024, investment interest for quality strata office units might pick up in the second half of the year, especially if new product is introduced into the market. However, aged office buildings reaching obsolescence are not likely to benefit from any price growth.

Retail

Although the retail rental index declined 0.1% q-o-q in Q4 2023, there was growth of 0.4% throughout the year.

The marginal annual increment in retail rents reflect the challenges of the operating environment, beset with cost increases despite the return of tourists and the normalisation of shopping patterns post-pandemic.

Nevertheless, occupancy levels continued to climb, increasing to 93.5% in Q4 2023 from 92.8% the previous quarter, clocking the highest quarterly occupancy since Q4 2014.

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$27.00 psf pm in Q4 2023, an increase of 1.1% q-o-q and 3.6% y-o-y.

With the year-end school holidays, retailers noted a quieter last quarter of 2023, as many Singaporean families took advantage of the strong Singapore Dollar to travel overseas in the first full year without travel restrictions. Nonetheless, the raising of the goods and services tax (GST) rate to nine percent compelled many local shoppers to make big-ticket purchases before the end of 2023, especially discretionary items such as furniture and appliances.

The retail sector outlook for 2024 is set to be stable with potential for cautious growth, fueled by the continued improvement of visitor arrivals to Singapore for both business and leisure purposes. There is every chance for more visitors from China in 2024 with the 30-day visa-free arrangement that will take effect from 9 February 2024, just in time for the Chinese New Year holidays.

Tight occupancy levels prevail at popular malls both in Orchard Road as well as suburban areas, with these healthy levels expected to maintain throughout the course of 2024.

Many existing retailers are also scouting for suitable locations at the right occupational costs for expansion.

At the same time, international brands also look to set up new presence in Singapore to tap into the growing affluence and consumer strength of middle-class societies in Southeast Asia.

The ongoing normalisation of travel patterns, return-to-office momentum, and recreational activities post-pandemic will underpin occupancy and rents in the retail sector.

However, the positive impact of continued normalisation will be held in check by increased operating costs, and as such, prime retail rents are envisaged to increase at moderate levels of between 2% and 4% for the year ahead.

The retail rental index has now been positive for two consecutive quarters, with marginal increases of 0.5% q-o-q in Q3 2023 and 0.3% in Q2 2023, as the recovery in the retail market picks up.

Net take-up of retail space increased by 882,640 sf leading occupancy levels to increase to 92.8% in Q3 2023 from 92.5% in the previous quarter, also surpassing the 92.5% recorded in Q4 2019.

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$26.70 psf pm in the third quarter of 2023, an increase of  1.1% q-o-q and 4.3% y-o-y.

Prime retail rents in all micromarkets grew by more than 5.0% y-o-y, except for the suburban areas that registered a more moderate growth of 0.6% y-o-y, after having recovered much earlier than the retail spaces in the more central areas of the island.

Nevertheless, suburban prime retail rents expanded the most on quarter with a 2.1% increase to S$25.90 psf pm.

The burgeoning interest in destination Singapore, and hospitality recovering to pre-pandemic performance, has generated momentum for further growth in the retail sector. The crisis management of the COVID-19 outbreak brought positive attention to Singapore, enhancing its status as a fundamentally safe and well-managed ecosystem, especially for investors looking for a stable base for business operations and growth opportunities. Post-pandemic, foreign brands continue to be attracted to Singapore, looking to extend their market share and footprint in the Asia Pacific region. Singapore is also fast becoming a destination of choice for many concerts of international artistes alongside the return of major events like meetings, incentives, conferences and exhibitions (MICE) events are steadily returning to Singapore.

With lessons learnt from the pandemic on the use of social media, retail operators have been able to combine the best of innovative online and traditional physical channels to connect with a larger customer base. As such, several local brands were able to marry both to draw large followings on social media that created viral bursts of sensational shopper interests and crowds. The Paper Bunny and Beyond The Vines were able to attract attention on both online and offline stores, as new products and promotions generated viral responses during marketing campaigns from a digitally-savvy demographic base.

Going forward, retailers will continue to evolve and adopt new tools to obtain trend-based competitive advantages over competitors for the attention and spending dollar of consumers. With the increasing visitor arrivals, the remaining three months of 2023 will likely see the retail market consolidating the improvements achieved since Singapore opened its borders, culminating in year-end activities to wrap up a largely positive and eventful year.