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Singapore to achieve five-year average office rent growth of 3.3%

Singapore Business Review logo Singapore Business Review 30/6/2020 Staff Reporter
a view of a city © Provided by Singapore Business Review

Singapore medium-term office rent is expected to achieve five-year average annual growth of 3.3%, according to Colliers International report. Grade A offices remain attractive with a yield of 3.9%.

The report is confident that Singapore can keep its position as one of the popular occupier destinations in the region, despite the expected 5% fall of citywide rent in 2020 as supply plans are limited. Rent is expected to pick up from 2021, driving five-year average growth of 3.3%.

In contrast to office and logistics, near-term income growth prospects in the hotel and retail sectors are poor due to travel bans. In Q2, APAC markets have seen an uneven progression, with signs of recovery in markets that were first impacted.

Average occupancy was about 38% for the first five months but has been exceeded in certain markets like Singapore, where the boost came from the use of hotels for quarantine facilities. A gradual pick-up is expected over the rest of 2020 as lockdowns or states of emergency are lifted.

The report adds that Singapore's hotels sector is especially well-placed for recovery. A pick-up in tourist arrivals after the pandemic subsides will bode well for hotels and tourism-related businesses.

In the longer term, the demand drivers for hospitality in Singapore remain intact, including tight near-term supply and more tourist attractions. Business demands are also expected to stay firm, but will probably pick up more slowly. However, the limited size of the domestic tourism market in Singapore, given the country's population of 5.7 million, will be one of its weaknesses.

Meanwhile, Colliers notes that the potential for a recovery in income growth in the retail sector is lower than the hotels sector. This is attributable to the rising threat from e-commerce, high occupancy costs, and a desire for greater "experiential" shopping, which has proven difficult for traditional retailers to meet.

Retail sales growth may see a short-term rebound in many markets as the impact of the pandemic fades. However, on a medium-term view, sales growth for retail enterprises remains bleak.

Singapore's retail property vacancy is expected to rise 0.5 percentage points (ppt) in 2020. It is expected to trend towards 7% as new supply should stay limited and mostly concentrated in suburban and fringe areas, where there is a well-defined population. In addition, average ground-floor retail rents are expected to decline by about 5% in 2020.

Overall recovery of the retail sector could be slow over the next few years given that structural challenges remain thus, a rental decline in compound annual growth rate of 0.5% is seen for 2019-2024.

In general, suburban malls with a focus on everyday goods or well-managed city centre malls with a good spread of shops and activities, such as Funan Mall in Singapore, should achieve higher rent growth than high street shops with a focus on luxury goods.

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