Slower start for residential sales as cooling measures bite
For the first quarter of 2022, only 1,825 new private homes were sold, inching down by 39.5% as compared to 3,018 units transacted in the previous quarter and 47.8% lower yoy. Lower volumes were driven by a confluence of factors. Buying demand slowed as buyers adjusted to new cooling measures introduced at the end of last year, while supply remained low due to a dearth of major launches during the quarter. Nonetheless, market sales performance could improve in the upcoming quarters as more launch activities would be carried out such as the expected launch of major projects like the 407-unit Piccadilly Grand and 298-unit LIV @ MB in the 2nd quarter of this year.
Secondary market sales volumes (including resale and sub-sale) continued to decrease in Q1 2022 – a second consecutive quarter of decline, with 3,518 units sold during the quarter as compared to 4,907 units changed hand in the previous quarter. Aside from impact of cooling measures, the decline in sales could be due to seasonality factor. Sales volumes registered during the first quarter of the year were almost always lower than that in the second quarter since data was available in Q1 2004, except for 2020 when Q1 2020’s sales volumes were higher than Q2 2020’s volumes due to the circuit breaker.
Subdued price growth
On the back of lower sales volumes, private home prices price growth slowed in Q1 2022. Private home prices inched up 0.7% in the first quarter of 2022, marking the eighth consecutive quarter of increase. However, this was the slowest growth since Q2 2020 and slowing significantly from the 5.0% jump in Q4 2021.
The softer performance of the market in terms of sales volumes and price growth could be attributed to various factors such as property curbs, absence of major new launches, Chinese New Year festive lull period as well as macroeconomic headwinds.
The increase in overall private home prices was led by the landed properties segment with prices of landed properties rising by 4.2% qoq, after inching up by 3.9% qoq in Q4 2021. This market segment was underpinned by firm local owner occupier demand amid limited stock. Q1 2022 also witnessed the launch of 107-unit freehold strata landed housing project Belgravia Ace which achieved brisk sales of 74 unit sold during its first quarter of launch at a median unit price of $1,080 psf.
On the other hand, prices of non-landed properties retreated 0.3% qoq in Q1 2022, reversing from a 5.3% qoq gain in Q4 2021. The drop in non-landed property prices were driven by price declines in Core Central Region (CCR) and Rest of Central Region (RCR) by 0.1% and 2.7% qoq, respectively.
Nonetheless, prices in the Outside Central Region (OCR) bucked the trend by rising 2.2% qoq, albeit at a slower pace as compared to the 5.7% qoq increase in the preceding quarter. This market segment is mainly supported by owner-occupier demand, especially HDB upgraders who are less affected by the new property curbs which target investors’ demand. Indeed, HDB resale prices grew by 2.4% in Q1 2022, the eighth consecutive quarter of growth. More demand could have gravitated towards the OCR, given her cheaper prices and cooling measures which has impacted investors affordability. Also, total unsold stock in the OCR was the lowest, at around 4,000 units, among the three market segments since Q4 2020.
Notably, the latest cooling measures had a limited impact on foreigner demand (excluding permanent residents). The proportion of foreign demand for total non-landed sales in Q1 2021 fell slightly to 3.2%, compared to 3.8% for the whole of 2021. Even in the CCR, where the proportion of foreign demand is markedly higher, the proportion of foreign demand fell to 8.9% in Q1 2022 from 9.1% for the whole of 2021.
Low unsold inventory to spur land acquisition
Unsold inventory inched up marginally by only 0.2% qoq during Q1 2022 following 11 consecutive quarter of decline. However, it remained at the second lowest stock record of only 14,362 units since data was available from Q3 2006.
Amidst low inventory levels, developers are expected to would continue to acquire land via both public tender and private land sales market. Some of them would prefer to bid for GLS site - a more straight-forward process. On the other hand, some would consider the en bloc market, especially for smaller palatable projects where development risks and costs are lower.
Prices and volumes to cool in 2022 but remain positive
Despite potential headwinds such as rising inflation and interest rates and geopolitical uncertainty, we remain sanguine on the outlook of private residential prices. Private residential prices could increase by 2-4% in 2022 as underlying demand remains firm given a tight labour market and a continued preference to own property in Singapore. Furthermore, development costs are likely to increase given supply chain disruptions and geopolitical developments. Given current low levels of unsold inventory, developers are likely to pass on these added costs to buyers.
With market activities are expected to pick up in subsequent quarters as more projects are launched, new sales volumes for the whole of 2022 can range between 9,000-10,000 units while resale volumes can reach 11,000 -13,000 units.
A super tight residential leasing market
The private residential leasing market continued to maintain its buoyancy with rents rising by 4.2% in Q1 2022 – the highest qoq rental growth since Q2 2010 when rent rose by 5.9%, marking a sixth consecutive increase in rents. Vacancy rates continued to tighten from 6.0% in Q4 2021 to 5.3% in Q1 2022, reaching a 9-year low.
Notably, OCR vacancy rates reached 3.6%, an historic low since available data from Q1 2014. CCR and RCR non-landed vacancy rates also tightened to 8.1% and 6.1% respectively. Construction delays cause by the pandemic and supply chain disruptions would continue to support demand for interim housing arrangements from many families. Additionally, gradual return of foreign expats is expected to underpin rental growth amidst further reopening of economic activities in Singapore and regional geopolitical developments.
However, rental growth could slow moderately as completions increase in 2022 with a total of 11,220 units, 75.6% higher compared to 2021’s completions of 6,388 units. Nonetheless, 2022 completions will remain below the 10-year (2012 to 2021) annual average of 12,673 units. After that, rental growth could taper off in 2023 given an expected supply of 16,978 units then.
Broad-based office recovery continues
In the first quarter of 2022, Central Region office rents grew by 1.6% qoq, accelerating from the 0.9% qoq increase in Q4 2022. The rental increase was driven by fringe area office rents which grew by 4.2% qoq while central area office rents climbed 1.2% qoq. Downtown core office net demand remained negative at -183,000 sf, marking a sixth consecutive quarter of negative net demand. Older office stock saw lower demand as hybrid work gains traction and flight to quality continues. Nonetheless, the level of negative net demand is considerably lower compared to the first half of 2021 where net demand surpassed -300,000 sf in each of the quarters then.
Nonetheless, the rental outlook looks positive with both Category 1* and Category 2* office rents rising up by 1.6% and 3.9% qoq respectively in Q1 2022, higher than the 0.6% and 0.4% qoq growth in the preceding quarter. On a yoy basis, Category 1 and Category 2 office rents also turned the corner by 6% and 1.5% yoy growth respectively, the first yoy growths since Q2 2020. In Q1 2022, Islandwide office vacancy rate remained stable at 12.8%.
*Category 1 refers to office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area. Category 2 refers to the remaining office space in Singapore which are not included in “Category 1”
A flight to quality continues to drive the market and we anticipate further rental growth in the CBD office market, though performance would bifurcate across prime offices and older stock in the CBD amidst ongoing flight to quality and limited prime office stock. CBD Graded A Office rental growth are expected to increase by 5% in 2022, while CBD Grade B rents will climb slower at about 3%. Despite economic uncertainties such as Ukraine-Russia conflict and rising inflation, the market remains supported by global economic reopening and a relaxation of safe management measures and border restrictions which will drive business activities and expansions. Additionally, tech and finance firms continue to have a healthy appetite for office spaces and are expected to drive CBD office demand.
Notable recent office leasing transactions in the CBD include The Work Project, a co-working operator, absorbing 48,000 sf of space at 6 Battery Road, and Shein, a Chinese online fast fashion retailer, taking up 21,000 sf of space at Marina Bay financial Centre Tower 3. While Guoco Midtown, the only major CBD Grade A development set to complete this year, is seeing healthy leasing demand. BASF and Boehringer Ingelheim are taking up about 25,000 sf and 30,000 sf of office space at Guoco Midtown respectively.
Central Region office prices also rebounded strongly from the -1.8% decline in the previous quarter, at 4.4% qoq in Q1 2022, the highest quarterly growth in eleven years.
Notable office investment sales include, KKR’s, an American private equity conglomerate, first office investment in Singapore - the purchase of 20 Anson Road for $599 million from AEW. Also reflecting investor enthusiasm in the CBD office market is the sale of Cross Street Exchange by Frasers Logistics & Commercial Trust to PAG for $810.8 million.
Further re-opening to increase retail confidence
Central Region retail rents fell by -0.4% qoq in Q1 2022, reversing the gain in the previous quarter as many retailers still trying to outmanoeuvre uncertainties. Nevertheless, on a yoy basis, Central Region retail rents continued to fall at a lower rate of -2.9%, after peaking at -16.5% in Q1 2021.
The fall in retail rents could have been driven by the downtown core region or the CBD, where net demand fell by 129,000 sf, leading to downtown core vacancy rates increasing to 12.8% in Q1 2022 from 11.1% in Q4 2021. This also led to higher island-wide vacancy rates, which rose to 8.3% in Q1 2022 from 8.1% in Q4 2021. Vacancy rates in Orchard and suburban areas remain stable at 11.3% and 6.1% respectively.
Orchard remains an attractive expansion destination for new-to-market and luxury brands. A host of retailers have debuted their outlets at 313@somerset in Q1 2022, such as Eclaire Atelier, a luxury consignment store, La Carriere, a lifestyle product retailer and astrology service provider, and Ohayo Mama San, a Japanese fusion restaurant. The Orchard retail scene is also appealing to more local brands and e-retailers that have leveraged on lower rents and higher vacancy to secure prime spaces that rarely come onto the market.
The Orchard retail market particularly will benefit from a potential boost to the tourism sector, of which the simplified Vaccinated Travel Framework allows all vaccinated travellers to enter Singapore without quarantine. The allowance for 75% of staff to return to the office will also augur well for this market, shoring up retail footfall and spending in city areas.
The retail suburban market is expected to remain resilient as hybrid work and nearby residential catchments will continue to support rents.
On a whole we remain are optimistic on the outlook of the overall Singapore retail market, with retail footfall and sales expected to strengthen with the significant easing of safe management measures, including the doubling of dine-in group size, more people returning to the office, removal of some restrictions on selling and drinking alcohol, resumption of live performances, and reopening of all nightlife businesses such as bars, karaoke establishments and night markets. The confluence of these factors would fuel a revival of footfalls especially for orchard and downtown core retail.
As the country adjusts to the new normal with a substantial easing of Covid-19 rules and the return of industry-leading events such as Singapore Grand Prix, we expect islandwide prime retail rents to increase by about 2%-3% yoy.
However, rental growth could be tempered by higher operating costs due to heightened inflation. This is especially for the F&B sector, a key sector of retail demand, which is hit by a double whammy of higher energy and food prices.