The economic impact of the Coronavirus issue is expected to be short-lived based on the current situation. The Singapore government has tried to put in place multiple lines of defence to minimize the chances of the virus spreading further.
Any disruption to market activity is expected to be short-lived; held up by the country’s sound economic fundamentals. The impact will be mostly felt by the hospitality, retail and F&B sectors, with limited impact on both the office and industrial sectors as these are non-tourism related sectors. Corporates may delay decision making in the first quarter of 2020 as they focus on tactical issues around operations in China for the moment. This is expected to impact activity in the first quarter of 2020 against an office leasing market that has already been grappling with a slowdown arising from the US-China trade war.
The impact on the hospitality sector is more immediate. With millions in China under an effective lockdown and a ban on Chinese tour groups and travellers who have recently travelled to China, tourist arrivals especially from China are expected to slow in 1H 2020. Given that Chinese tourists make up about 20 per cent of Singapore’s international visitors with about 3.6 million visitors to Singapore in 2019, overall hotel RevPar is expected to see some downward pressure in the first half. The slow down in tourist arrivals will result in a decline in shopping spend by Chinese tourists, particularly retail trades and tourist destinations which cater to Chinese tourists. Chinese tourists were the top spenders in the first half of 2019, spending close to S$2 billion on shopping, accommodation, F&B, etc, with 51 per cent on shopping alone. As such, some of the more touristy shopping destinations mainly in Marina Bay Sands and Orchard locations could be affected if the travel ban and outbreak persists.
However, landlords of major shopping centres are not under pressure to lower rents especially if the overall situation improves in the next couple of weeks. Typically, the well-managed shopping centres also have enough tenants in waiting to take up any vacancy that becomes available. So long as the virus remains at bay with no community spread, the temporary decline in footfalls at malls should recover over a short period of time.
In the residential sector, there could be a slight impact on project launches as developers are likely to hold back new launches in view of the weaker sentiment. High-end luxury properties with more Chinese buyers could face slower take-up rates as viewings are expected to slow down in the midst of the outbreak. Again, the impact should still be contained as Singapore continues to be seen as a safe haven location amid heightened global uncertainties.
Liquidity is still aplenty and investors continue to search for yield in the real estate sector. Well-managed and well-located office and industrial assets will remain sought after by investors and occupiers who typically take a medium to long term view when they purchase or lease these properties.
Post-Wuhan virus, the mid-term outlook for the hospitality market is favourable, given the low hotel supply pipeline over the next few years and healthy visitor arrival estimates. A slew of new tourist initiatives and developments are expected to raise the attractiveness of Singapore as a regional tourist destination in Southeast Asia over the long term. This includes continued investment in Singapore’s aviation infrastructure (Changi Airport Terminal 5), and tourism attractions/developments such as the Mandai eco-tourism hub, Jurong Lake District, Sentosa redevelopment and AEI works at the two integrated resorts.