URA Flash Estimates Q3 2024

Residential

In the first nine months of 2024, 5,376 private homes (excluding Executive Condominiums (ECs)) were completed, adding to the 19,968 units that were completed in 2023. With 25,344 new private homes added to islandwide stock in the past 21 months, the increases in price have eased as the URA All Residential Price Index declined 0.7% q-o-q but nevertheless still rose 1.6% in the first nine months of the year. The 0.7% q-o-q decrease in the prices of private homes islandwide in Q3 2024 based on the final numbers announced today showed a lesser decrease compared to the fall of 1.1% q-o-q when the flash estimates were announced at the beginning of October. This was likely due to the 83 units or 52.5% of 8@BT’s total number of units being factored in for the full quarter results.

During much of Q3 2024, homebuyers looking for new homes remained cautious and would only purchase a new home that checked off most of the boxes in their lifestyle list. This was a characteristic that has prevailed for much of the year as the majority of buyers continued to sit on the fence held back by high interest rates. However, the announcement of a 50-basis point interest rate cut in September 2024 by the US central bank could prove to be the shot-in-the-arm needed to move the private residential market. Notwithstanding that the effects of the interest rate cut are not likely to be immediate, but will mostly be felt from next year onwards, this might just be the impetus to tip homebuyers who are presently sitting on the fence into a purchase, especially those buying for their own occupation. Some signs of increased activity have already been observed in launches in October such as Meyer Blue and Norwood Grand.

It is probable that private home prices will end 2024 at the lower end of Knight Frank’s 3% to 5% projection, i.e. at around 3% and about half the 6.8% annual increase in 2023. There are a few months left in 2024 for developers to launch projects that are highly anticipated and if launched, these projects could very well move the index back into positive territory. These include, among others, Union Square Residences in the Core Central Region (CCR), Nava Grove in the Rest of Central Region (RCR) and Chuan Park in the Outside Central Region (OCR).

New homes sales between January and September 2024 totaled 3,049 units, a 42.8% fall from the 5,329 units in the same period a year ago. Although the mood has been tentative and selective among homebuyers for most of 2024, transaction momentum of new sales could pick up before the holiday season at the end of year with a series of new launches and an improvement in buyer sentiment to fall in Knight Frank’s expectations of between 4,000 and 6,000 units. Even so, 2024 will likely have the poorest showing since 2008 (4,264 new sales) during the Global Financial Crisis.

The URA rental index for private homes increased 0.8% q-o-q in Q3 2024, after having fallen 4.8% in the past three consecutive quarters (Q4 2023 to Q2 2024). Nevertheless, the overall decrease in private home rents from January to September 2024 is now 1.9%. Smaller units of one- and two-bedroom types, which are more proliferate, to continue to be under the most pressure where landlords have to adjust their rental expectations in order to continue to keep these units occupied. However, rents at family-sized units with three- and four-bedrooms generally remained supported due to the smaller available inventory.

Office

The office rental index decreased 0.5% q-o-q in Q3 2024, against the 3.1% q-o-q increase in Q2 2024. In the first nine months of the year, office rents rose about 0.9%, and this rate of growth was much slower than the 12.8% expansion registered between January and September 2023. During the quarter and throughout most of the year, relocations and expansions from larger office occupiers both domestically and cross border were few and far between. The lack of available larger optimal floorplates of around 30,000 sf coupled with an uncertain economic climate, impeded the movement of such occupiers looking to consolidate all the various business functions under one roof. Instead, smaller space occupiers were more active with modest demand stemming from companies such as those from North Asia establishing new offices in Singapore. The former Meta space at South Beach Tower comprising 115,000 sf has broadly been backfilled by smaller occupiers.

Despite the addition of the newly completed IOI Central Boulevard Towers, occupancy levels island wide remained stable at 89.0% in Q3 2024, slightly lower than the 89.2% registered in Q2 2024. Most occupiers are expected to continue showing a preference for renewal upon lease expiry. In tandem, landlords are becoming more negotiable, prioritising occupancies in the uncertain economic climate.

The office price index grew 0.6% q-o-q in Q3 2024, moderating from the 3.1% q-o-q increase in Q2 2024. Nevertheless, with the announcement of interest rate cuts, this would likely be a catalyst in stimulating more strata office and whole office building sale transactions, with deals that have been simmering below the surface surfacing after what has been a relatively quiet first half of 2024.

Retail

Rents of retail space showed marginal quarterly growth of 0.3%, but declined 0.3% y-o-y. Retail rents have remained relatively unchanged and stable as occupancy levels continued to rise marginally, increasing to 93.5% in Q3 2024 from 93.4% in the previous quarter. Although visitor and Chinese arrivals have been improving, the return of tourists was not able to overcome the prevailing challenges of high operating costs in the retail space.

Singapore has been and remains the natural destination for international brands on the path to regional expansion into the Southeast Asian market. In tandem with the rising number of Chinese visitors, more Chinese brands made Singapore the first stop before fully establishing their presence and network in other Southeast Asian economies with steadily growing middle class demographics. However, the substantial number of new overseas brands making their way into the Singapore retail market is creating pressure for local F&B brands. Many homegrown F&B operators are forced to innovate and/or consolidate in order to keep business operations at sustainable levels in what is a very Darwinian retail environment. With more entrants vying for the same physical spaces, rents could show some upward momentum amid other cost pressures of material and labour.

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$27.40 psf pm in Q3 2024, an increase of 0.1% q-o-q and 2.7% y-o-y. While Knight Frank’s prime retail rents are expected to end 2024 with modest growth, this rental growth has started to taper and flatline as the high-cost environment takes a toll on many retailers and eateries. Not all is well in the retail space despite visitor arrivals progressively normalising to pre-pandemic numbers and with Singapore being attractive to middle class and high-net-worth visitors from Southeast Asia and beyond.