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Singapore's retail property market seeing 'clear signs of recovery': JLL

·4-min read

In its report, the JLL team sees five key factors as helping to drive near-term domestic recovery for the retail property market.

The retail property market in Singapore is seeing “clear signs of recovery”, says JLL Research.

This is due to the country’s success in transforming Covid-19 into an endemic, the sustained reopening of its domestic economy and borders, as well as the expansion of its economy.

“In the near-term, stronger real wage growth and excess savings by consumers during the Covid-19 pandemic in 2020 and 2021 could cushion the impact of higher inflation and interest rates on consumption,” it writes.

In its report, the JLL team sees five key factors as helping to drive near-term domestic recovery for the retail property market.

These are: the pent-up demand due to the lockdowns in 2020 to 2021, the stronger wage growth in Singapore, the recovery of the nation’s tourism industry, physical retail experiences that complement the e-commerce experience and the healthy demand-supply fundamentals.

“We expect domestic consumption growth to accelerate as Singapore transitions towards endemicity with the large-scale relaxation of Covid-19 measures that encourage community and social cohesion, such as dining, shopping, and leisure activities,” the team writes.

“The lifting of key domestic restrictions is increasing foot traffic in retail stores and shopping malls and restoring the operational capacity of businesses — in particular, food & beverage (F&B) operations — in turn, driving retail sales performance,” it adds.

In the near-term, the lifting of the remaining Covid-19 restrictions will further enhance retail sales performance, albeit marginally since most of the domestic measures have already been lifted.

In addition, retail properties will stand to benefit from the inflow of non-residents.

“Singapore has ongoing efforts to attract foreign investment and talent — including the extensive reopening of its borders to all vaccinated travellers, its quarantine-free and test-free travel protocols, and its business-friendly environment,” the team notes.

Singapore’s wage growth, which are expected to rise by a compound annual growth rate (CAGR) of 5.9% over the five-year period from 2021 to 2026, compared to a CAGR of 2.8% from 2016 to 2021 according to Oxford Economics, will outstrip the 2.4% annual inflation in Singapore from 2022 to 2026.

“Additionally, the government’s Goods and Services Tax (GST) Offset Packages and $1.5 billion inflation support package should mitigate the impact of the GST hike and higher inflation on consumption for most of the population,” the JLL team writes.

The recovery of Singapore’s tourism industry in the coming years will be yet another key driver of growth for the retail market.

“Singapore is set to enjoy a compelling and strong medium-term growth potential of its tourism market, considering the nation’s vibrant tourism sector before the pandemic,” says the JLL team.

The International Air Transport Association (IATA) has said that it expects a rebound in international tourism in 2022, driven by pent-up demand, with international air travel in the Asia Pacific region to fully recover to pre-pandemic levels by 2025.

“China’s easing of its zero-Covid strategy and its removal of international travel restrictions that facilitate outbound travel will be fundamental for travel demand to Singapore to return to pre-Covid levels in Singapore, as China is the region’s largest market for tourism and Singapore’s top tourism source market in 2019,” says the team.

Additionally, brick-and-mortar stores look like they’re here to stay.

Despite the shifts in consumer habits during the Covid-19, brick-and-mortar stores serve as a complement to online platforms.

“While online retail platforms offer consumers convenience and competitive prices, physical stores provide shoppers with experiences that engage their senses, and the opportunity to test products before making a purchase,” says the JLL team.

“Brick-and-mortar stores, especially experiential or tech-driven flagship concepts, are also integral to business activities, such as brand building and product showcasing, and act as a destination for consumers to gather, socialise and network,” it adds.

Finally, Singapore’s commitment to reopening the economy alongside with its “pandemic preparedness” will continue to lift retailer confidence.

“Consumption growth, underpinned by rising wages and a recovery in tourism, should encourage business expansion and support healthy occupier demand in the medium-term,” says the JLL team.

“The supply pipeline of quality retail space will remain tight over the next five years, at less than 1.0% of existing stock annually. Coupled with rising occupancy rates in many retail malls in good locations, rents of prime floor space in retail assets are set to rise by an above-trend average of 2.5-3.5% per annum over the next five years,” it adds.

In addition, the team observes that higher yield expectations in a higher interest rate environment may lead to retail asset prices increasing modestly in the near-term, quality retail asset prices are expected to appreciate more significantly in the medium-term on a rising rent outlook, considering the scarcity of tradeable assets and Singapore’s safe-haven status.

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