Desmond Sim,Head of Research, Singapore & SEA :
Residential
• The URA residential price index registered its fourth consecutive quarter of growth of 3.4% to 149.0 in Q2 2018 vs 3.9% in Q1 2018. This represents a 9.1% increase from the trough in Q2 2017, and a year-to-date recovery of 7.4%. The growth was led by increases in the RCR (5.6%) and OCR (3.0%) segments, with well-received launches in these segments.
• Take- up was healthy for Q2 2018 at 2,366 units, the highest in over six months. However, this was on the back of the highest number of launches in five quarters. Despite the healthy takeup, demand could not match the supply from the new launches, leading to a higher number of unsold units (26,961) in Q2 2018 as compared to 24,193 units last quarter.
• On the supply side, there is a potential supply of 19,500 units from awarded Government Land Sales (8,400) and enbloc sites (11,100), which have not been granted planning approval but will be made available by 2019.
• However, supply from enbloc sites might vary as completion is subject to various hurdles, due to the inherent complexities of the collective sale process as well as pressures from the recent measures. CBRE expects exuberance in the collective sale market to calm as the measures will have a greater impact on land acquisitions. ABSD rates for entities have increased to 30% from 15% (5% of which is non-remissible). Developers will have to adjust their pricing expectations, marketing strategies, and timing of their launches.
• On the demand side, buyers are expected to be more selective as they recalibrate their budgets and options. However, we expect the price index to continue to display some growth till year end, as some new launch prices are establishing new benchmarks on the back of higher land costs.
Office
• Rentals of office space in Central Region increased by 1.6% q-o-q in Q2 2018, its fourth consecutive quarter of growth. This was however at a slower pace compared to the last quarter which had registered a 2.6% q-o-q increase. Better quality buildings showed stronger rental growth, evidenced by the 2.4% q-o-q increase for Category 1 offices while Category 2 office rose only 1.4% q-o-q.
CBRE Press Release
• CBRE believes that the Singapore office market is becoming a two-tier market, with stronger focus being placed on Grade A properties. Flight to efficiency has been a key theme for occupiers, with demand being driven by select sectors such as co-working, and to lesser extent technology firms.
• The fairly tight vacancy environment along with a tapering supply pipeline likely encouraged office landlords to continue to press for higher rents as they seek to benefit from the market upswing. The medium term rental outlook remains positive especially for the Grade A segment.
• Potential risks remain, particularly on the demand side, in light of recent escalations in trade disputes and the possible dampening effects on global economic growth. Both landlords and occupiers will need careful navigation through the next 6 to 12 months as the actual strength of the market is tested.
Retail
• URA's retail property rental index for the Central Region declined by 1.1% in Q2 2018 over the preceding quarter, despite an increase of 0.1% in Q1 2018. CBRE Research believes that despite the q-o-q corrections in the retail property rental index, rentals from prime space remain resilient from the fairly tight vacancies in this category. Any corrections in rental growth is likely to be attributed to the secondary areas and corridors. The need to fill up vacant space has tipped the balance between rental growth and occupancy.
• Orchard Road space continued to display resilience as vacancy rates inched downwards to 5.6% in Q2 2018, the lowest in 14 quarters. This is possibly attributed to the lack of new supply introduced. At the same time, a growing tourism market will support the demand for Orchard Road space.
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