– Bright spots in the SG real estate market, with marginal improvement in economic growth expected in 2020
– Low global interest rates, benign growth, and strategic asset allocation strategy should position SG real estate market favourably among investors
– Hotel and Office properties tipped as assets that offer mid- to long-term growth in SG real estate marke
– Within SG real estate market industrial and retail sectors bottomed but will remain fragile
– Residential developers to selectively acquire sites as they pare inventory within SG real estate market
Image credit: Alpha Stock Images
Colliers International today published its Singapore Market Outlook 2020 report, which highlights its growth forecasts for the market and the real estate opportunities in various property sectors in Singapore.
Broadly, Colliers Research expects the Singapore real estate market to retain its lustre this year, with the possibility of some sectors outdoing 2019’s performance. This is against a backdrop of the relatively more positive economic outlook in Singapore, stabilising global economy, the favourable interest rate environment, and the US-China trade truce which helps to mitigate some uncertainty in the market.
Tricia Song, Head of Research for Singapore at Colliers International, said, “In 2020, we expect office, hotel and residential sectors to post mild growth in 2020 on favorable demand-supply dynamics. Meanwhile, the industrial and retail property sectors should continue to stabilise after years of consolidation, while the office sector takes a breather after a strong 26% rental growth over three years. In the capital market, while valuations are high, office and hotels would still offer the best risk-reward proposition on the mid- to long-term horizon.”
SG Real Estate Market Outlook 2020 Highlights
Hotel Property Outlook
Colliers Research expects demand for rooms to remain healthy in 2020, supported by rising visitor arrivals, new tourist attractions, and large-scale MICE (meetings, incentives, conferences, exhibitions) events, such as The International Trademark Association’s 142nd Annual Meeting and the 103rd Lions Clubs International Convention. The long-term growth drivers for the hospitality sector include the new airport terminal and expansion of the Integrated Resorts.
In terms of trading performance, revenue per available room (RevPAR) – which has recovered since 2017 – could grow by 1% year-on-year (YOY) in 2020 on tight near-term supply and continued growth in visitor arrivals. Meanwhile, occupancy is expected to improve with limited supply in 2020-2022F. Even with potentially increased room completions in 2023 and 2024, the total new completions over 2020-2024 would average around 1,400 rooms per annum, still well below the last 10-year average of about 2,800 rooms per annum.
Office Property Outlook
In 2020, Colliers Research expects office demand to continue to be led by the technology and flexible workspace sectors, albeit at a slower rate than 2019. The rapid expansion in the flexible workspace sector could lose steam as operators focus more on sustainability and profitability; the tight office vacancy will also likely constrain the sector’s growth.
The average rent of Grade A office space in the central business district (CBD) is projected to rise at a slower pace of 1% YOY to SGD10.19 per square foot per month (psf pm) in 2020, as rents are on a 10-year high and tenants resist further rent hikes in view of macro-economic uncertainty. Colliers Research estimates that CBD Grade A vacancy could increase to 5% in 2020 as net demand declines. That said, the limited supply in 2020-2021 should keep vacancy below the 10-year average of 6.2%.
Retail Property Outlook
The overall retail market will continue to bottom in 2020 with relatively flat rental growth, as the market digests the large new supply that was completed in 2019. Colliers Research anticipates any recovery to be subdued given the lack of catalysts. Ground-floor rents at Orchard Road are expected to rise marginally (+0.3% YOY) in 2020, while that of Regional Centres could stay flat. Island-wide vacancy could also improve in 2020-2023 as front-loaded supply in 2018 and 2019 gets absorbed.
Key themes in the retail sector this year are: consolidation; “reinventing” retail; and omni-channel retail. Retailers are expected to adopt technology to enhance customer experience, as well as diversify their business models and expand their product offerings or services to provide more options for consumers. For the landlords, F&B expansions and the inclusion of flexible workspace in retail malls are likely to continue into 2020.
Residential Property Outlook
About 44 private residential projects are expected to be launched in 2020, of which 45% would be in the prime districts. Colliers Research notes that foreigners are still attracted to selected super luxurious projects.
Colliers Research is of the view that steady household formation, low unemployment, and favourable interest rates will support housing demand. It expects developers to sell about 9,800 new homes in 2020, on par with 2019. From the land sale tender results since the cooling measures in July 2018, developers have been active but cautious in their land bids. Colliers Research expects developers to remain prudent in land bidding, and to focus on moving inventory for most of 2020.
Industrial Property Outlook
Leasing demand is expected to remain soft on weaker trade before outpacing supply in 2021, supported by a projected gradual recovery in the global electronics cycle. According to JTC’s data, total net new supply is projected to intensify in 2020 to 18.5 million square feet, led by factory segment at 77%, before tapering off from 2021 onwards.
In general, Colliers Research forecasts continued two-tier performance between older lower-specifications and newer higher-specifications facilities. In particular, warehouse rents will likely stabilise over 2020-2021, before recovering from 2022 as supply diminishes. In contrast, business park and high-specs rents could improve slightly on sustained demand.
Investment Sales Outlook
Broadly, Colliers Research expects that total investment sales should increase by 6% YOY to SGD31.3 billion in 2020, given the strong institutional interest in Singapore real estate, especially in the commercial property sector.
Tang Wei Leng, Managing Director at Colliers International, said, “We expect the remarkable pace of commercial deals to continue, supported by favorable interest rate outlook, healthy office market, and Singapore’s status as a key global business hub. The government’s effort to rejuvenate the city centre, coupled with investors’ interest and confidence should help to maintain the strong investment momentum in commercial sector.”
In addition, Colliers Research forecasts industrial sales to accelerate, with more big-ticket transactions by industrialists and institutional investors into yield-accretive assets such as business parks and data centres. The investment demand for hospitality assets will remain firm, owing to the muted supply pipeline and robust visitor arrivals on more attractions and MICE events.
The post SG real estate market to retain its lustre in 2020 amid uncertainty appeared first on iCompareLoan Resources.