Chapter 6

Capital Markets

Singapore Real Estate Market Outlook 2021

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With the global economy finding its footing after the COVID-19 pandemic, the U.S. Federal Reserve, which sets the tone for central bank rates around the world, including Singapore, is unlikely to raise its near-zero rates anytime soon.

However, in the search for yield, decent spreads over risk-free assets still back the case for allocation to real estate. As such, financing from banks, capital markets, and private equity remain readily available to support real estate investment activities.

With increasing awareness and attention towards Environmental, Social and Governance (ESG) issues, this capacity will be further augmented by a sharp increase in ESG capital expected to target commercial real estate over the next decade.

On the other hand, while government stimulus might not be as generous as in 2020, it is unlikely to disappoint. The Singapore economy has been propped up by close to $100 bn of fiscal largesse – key measures include the Jobs Support Scheme, rental waivers, property tax rebates, corporate income tax rebates, income tax deferment and credit support measures for businesses. The upcoming Budget 2021 in February is likely to allocate a substantial amount to continue helping businesses and boosting employment.

As Singapore embarks on its vaccine roll-out program and phase three reopening, CBRE Research expects the post-COVID-19 recovery to accelerate in 2021, with the expansion of travel bubbles and green lanes that could gradually bring foreign investment back to pre-COVID-19 levels.



Even as investors remain cautious, spurred on by the low interest rate environment and ample liquidity, they will constantly be looking out for investments that can provide them with higher returns, but with stability and value at the top of their minds. As an investment destination, Singapore fits this bill perfectly given its proven ability to handle the pandemic, macroeconomic stability and political-neutral stance.

That said, investors still have a distinct preference for asset types which have proven to provide dependable and durable income streams; such as office, industrial and residential.

In the office sector, construction delays, a dearth of land supply in the CBD for new office developments, as well as the ongoing demolition of aging office assets for redevelopment (incentivised in part by the CBD Incentive Scheme that grants owners 25-30% bonus plot ratio if redeveloped into mixed-use), will lead to the city-state's office inventory growing at a slower rate of 1.13 mil sq. ft. per annum on average between 2021 and 2023. This backdrop should also motivate more owners of aging office buildings in the CBD to put their assets up for sale on the market.

The industrial sector is a beneficiary of long-term structural trends such as e-commerce, data centres, and automation. In addition to the nation’s ambition to become a global logistics hub, the demand for specialised logistics, especially cold storage for vaccines and medical products, will become even more pronounced.

On the residential front, the projected tender closings for H2 2020 GLS programme in H1 2021, together with an attractive slate of sites for tender under the 2021 GLS programme, would boost investment sales. Demand for homes should also continue to gather pace, underpinned by the expected economic recovery and gradual reopening of borders that could facilitate high-end home purchases by foreigners. Healthy demand for homes in 2021 would reduce unsold inventory, which has already dropped significantly to 24,341 units as of Q4 2020, from a peak of 37,799 units in Q1 2019. This could revive developers' appetite for land, starting with smaller sites, and drive a nascent recovery for the residential collective sales market in 2021.

Singapore's attractive propositions as a gateway hub for the region would also draw more corporations to set up bases here. This will provide support for demand for office space and keep vacancies tight. Grade A (Core CBD) office rents are also projected to recover in the region of 6 to 8% by 2023 from 2020.



With the wheels of recovery set in motion, the retail sector will be a key beneficiary of re-opening with tenant sales (especially in suburban malls given they are least affected by tourist traffic and supported by the work-from-home crowd), recovering to pre-COVID-19 levels. Phase Three re-opening also implies further easing of social distancing measures, higher mall capacity and consequently increased discretionary spending. Investors would likely capitalise on low valuations or look at malls with the potential for upgrading or place-making.

Globally, the availability of vaccines should lead to the progressive reopening of borders. This provides a positive outlook for the hospitality sector with the prospects of the resumption of both business and leisure travel.

In the meantime, domestic tourism is holding the fort with a $320 mil boost from the government in the form of tourism credits to Singaporeans, with spill over effects for the local retail and F&B sectors. Further, supply is expected to remain muted for the next few years, which is supportive of recovery in revenue per available room (RevPAR) when demand returns.

Baring unforeseen risks such as a deterioration in the employment situation, a potential resurgence of COVID-19, or potential government intervention in the real estate markets, CBRE Research believes that investment sales volume in 2021 is likely to rebound by around 30% from the $11.299 bn recorded in 2020.

This will be led by residential, office, and industrial sales. On the back of improved sentiments and consumer confidence, there will also be renewed interest in retail and hospitality assets, as investors would be on the lookout to acquiring these assets at more opportunistic levels.