Knight Frank Commentary URA Flash Estimates Q4 2024

Residential

The sudden surge of homebuyer activity in November, overturned the price correction of -0.7% q-o-q in Q3 2024. Overall price growth in the private residential market immediately rebounded in Q4 2024 as the URA All Residential Price Index increased 2.3% q-o-q and 3.9% for the whole of 2024. The reduction in interest rates with the US Federal Reserve announcing the first cuts in September 2024 followed by further reductions in November and December, prompted homebuyers to get off from sitting on the fence and jump back into the market. This manifested in the form of dramatic pent-up demand near the end of the year as sales at new launches.

There were 3,420 new sales in Q4 2024 alone, 12.2% more than the sum of the first nine months in the 2024 put together, with the entire year ending with 6,469 primary sales. This was similar to 2023 at just 0.7% more than a year ago. Combined with secondary sales, the total number of private home sales in 2024 was 21,950 units, 15.3% more than the 19,044 transactions in 2023.

The positive momentum in Q4 2024 should spillover into the new year with more prominent launches, motivating those who have been waiting on the sidelines into a purchase. Household net worth in Singapore that remains on a steady path of improving affluence, a low unemployment rate, and wealth that is passed down from earlier generations of Singaporeans that have benefitted from asset appreciation will drive take-up in the primary market. Knight Frank projects that non-landed new sales volume would likely range between 7,000 and 9,000 in 2025, with overall non-landed home transactions from 19,000 to 23,000 with some cautious optimism that 2025 will be a more active year for the private home market despite the prevailing uncertainties on the global stage. Prices are likely to grow between 3% and 5%, with the growth supported by moderate-to-healthy take-up rates at new launches in 2025.

In the Core Central Region (CCR), prices grew 2.6% q-o-q and 4.5% y-o-y even though demand was muted throughout much of the year, hamstrung by the 60% Additional Buyer’s Stamp Duty (ABSD) rate for foreigners. Foreign professionals and expatriates who have turned to the leasing market due to the prohibitive ABSD, are unlikely to return to the buying market any time soon, especially with rents no longer rising and in some instances easing. The non-landed rental index for the CCR rose a moderate 0.9% in Q4 2024 but declined 2.4% for the whole of 2024. Despite the fall of interest rates coupled with more new launches expected in 2025, demand in the CCR would likely stem mostly from local homebuyers, selectively scouting for an ideal home for themselves or for investment. With demand in the high-end market expected to remain soft until some of the more prohibitive measures are eased, price growth in the CCR is likely to remain more subdued when compared to the entire private home market islandwide.

In the landed market, landed home prices remained fairly flat with a marginal decrease of 0.1% q-o-q in Q4 2024, with a slight gain of 0.9% for year 2024. Nevertheless, demand for landed homes and GCBs were supported in 2024, and over the medium- to long-term will be supported so long as affluence in Singapore remains on an upward trajectory. Additionally, the globally mobile wealthy putting down roots in Singapore for its stability as citizens in an increasingly uncertain world will also provide base demand for landed homes. Perennial interest in landed homes against saleable inventory from retirees downgrading to homes that are easier to maintain, will provide the foundation for demand with prices expected to moderately increase around 3% in 2025.

The URA rental index for private homes was unchanged in Q4 2024, falling 1.9% during the course of 2024. There remains stiff competition among smaller available rental units. Landlords who previously refused to budge on asking rates, have now rationalised their expectations in order to keep their units occupied. Expatriate families continued to search for homes in the rental market as opposed to buying, due to the hefty ABSD payable by foreign homebuyers. With demand and supply now in balance in the leasing market, rental growth is expected between 1% and 3% in 2025, supported by renewals at large and continued interest in family-sized inventory.

Office

The office rental index decreased 0.9% q-o-q in Q4 2024, after the 0.5% q-o-q decline in Q3 2024. On a yearly basis, growth of office rents remained relatively flat, and unchanged from 2023. Overall, the flatline in office rents was largely held in check by occupiers renewing at existing premises, adopting a conservative business outlook in light of unrelenting global uncertainty. Many businesses remained cautious in allocating resources for relocation into new premises, given the material cost of moving in an era of inflation and a less predictable business outlook.

Occupancy levels island wide in Q4 2024 was at 89.4%, a marginal 0.4 percentage points (pp) increase from the 89.0% recorded in Q3 2024, but 0.7 pp lower than the 90.1% recorded in the same period a year ago. Despite the marginal decline in 2024, occupancy levels remained healthy in Q4 2024, with the slight easing largely attributed to the completion of IOI Central Boulevard Towers, where about 75% of the 1.2 million sf space is currently filled. Most quality office spaces in the CBD remained tight as landlords prioritised building occupancy amid an occupier market where most do not have mandates to expand.

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, at least for the first half of 2025. At the same time, some businesses are expected to continue relocating in measured and selective flight-to-quality moves from ageing buildings as and when leases expire. Knight Frank expects rents to be largely unchanged in the first half of 2025, with some growth projected in the second half once the world adjusts to the combination of the above factors. As such, prime office rental growth (as tracked by Knight Frank) is likely to range between -1% and 2% for the whole of 2025.

The office price index declined 0.7% q-o-q in Q4 2024, against the 0.6% q-o-q increase in Q3 2024. For the whole of 2024, prices rose by 1.8%., rebounding from the 4.2% decrease registered in 2023. There remains selective demand for quality boutique office space by smaller enterprises as well as family offices due to the more manageable price quantums and flexibility of usage. This will provide support for the strata office market.

Retail

The retail operating environment remains challenging due to prevailing high labour, occupational and material costs. Nevertheless, rents of retail space grew slightly by 0.6% q-o-q and 0.5% y-o-y, accompanied by occupancy levels that remained tight, improving to 93.8% in Q4 2024 from 93.5% in the previous quarter and Q4 2023.

Consumer relevance together with cost pressures were some of the reasons behind the closures of older retailers. Nonetheless, other shops and eateries opened or expanded during the quarter with fresh concepts for a variety of consumer demographics and income profiles. Many of the incoming brands with overseas origins tended to favour central locations.

Consumer tastes and trends are not only constantly changing, but also expanding in scope as a result the increasing numbers of well-travelled Singaporeans and also through widespread exposure of local consumers to social media. With the snowballing craving for new product as well as experiences, consumers are increasingly attracted to novelty. As shopping malls upgrade themselves, a novelty spin can make it stand apart from others.

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$27.80 psf pm in Q4 2024, an increase of 1.0% q-o-q and 2.1% y-o-y.

Despite an expected full tourism recovery in 2024 from which to build further growth in 2025, the retail sector remains challenging, as the strong Singapore Dollar coupled with inflationary pressures have resulted in many local consumers taking their spending to other countries where retail and recreation costs are more affordable. Hence, prime retail rental growth (as tracked by Knight Frank) for 2025 is expected to ease and stabilise within a projected range of between 1% and 3%.