Singapore’s economy is still charting a healthy outlook towards the end of 2022, but year-on-year growth is forecasted to slow down to an average of 2.5% in 2023 as compared to 3.5% in 2022 due to rising inflation and interest, as well as global geopolitical tensions affecting global economic growth1. Cushman & Wakefield’s latest Singapore Market Outlook 2023 report expects the overall Singapore property market to see positive but slower growth as investors seek out safe havens for wealth preservation and portfolio diversification.
“Singapore maintains a strong economic position as its strategic geographical location, pro-business policies, and stable political situation continue to attract inbound investments. Unemployment rates remain low, and wages and consumer spending continue to increase as we see signs of easing inflation. High levels of fixed asset investments in Singapore in 2022 also illustrate how Singapore remains supported from a flight to safety as capital gravitates towards ‘safe havens’,” said Wong Xian Yang, Head of Research, Singapore at Cushman & Wakefield. “We anticipate continued positive growth heading into 2023, albeit at a slower pace.”
“A slowdown in investment sale volumes may persist in 2023, given a gap in buyer-seller expectations due to economic uncertainty and rising borrowing costs. However, tight supply and low vacancy rates would allow pricing power to increase rents with inflation, limiting repricing opportunities as asset owners embrace their strong holding power. As such, we remain sanguine on Singapore’s property market outlook and the ability of the country’s high-performing economy to facilitate property demand.” he added.
As firms reassess expansion plans against economic headwinds, leasing demand for office spaces could cool in 2023 and lead to slower office rental growth. CBD Grade A office rental growths are projected to grow by 2% to 4% y-o-y in 2023, following a 6.1% y-o-y growth in 2022. At the same time, potential redevelopments in the CBD could tighten office supply and drive displacement demand, leading to higher demand in the Grade B office market, where rents are lower with more available options. CBD Grade B office rents are poised to rise by 2.2% y-o-y in 2022 and 2.1% y-o-y in 2023.
Additionally, given a combination of higher CBD office rents and uncertain economic conditions, some occupiers could look towards the more cost-efficient decentralised office space. We could see faster rent growth in decentralised markets, growing by 3% to 5% y-o-y in 2023, following a 3.2% y-o-y growth in 2022 as a result of the rental gap between CBD and decentralised office markets. Overall, the office could emerge stronger post-2023 as an economic slowdown may encourage higher office attendance, which would stimulate future office demand.
Industrial market rents have been on a broad uptrend against the backdrop of inflation and relatively limited supply in 2022. New economy assets such as prime logistics, warehouses and city-fringe business parks are poised to achieve a full-year rent growth of 2% to 3% in 2023 amidst tight supply conditions and resilient long-term demand from e-commerce, life science and technology. Conventional factories and outlying business parks are expected to see slower growth of up to 1.0% in 2023, given a higher supply pipeline. Warehouse demand could slow in 2023 amidst lower e-commerce demand, and an expected easing of supply chain disruptions in 2023 would slow stockpiling demand.
The long-term manufacturing outlook remains unchanged as Singapore’s manufacturing sector is poised to grow by 50% by 2030. Global digitalisation, automation and cloud adoption are secular trends and would drive electronics and electronics-related sectors, maintaining strong growth prospects for the industrial market in 2023.
Prime retail rents bottomed in 2022, driven by economic reopening and easing of safe management measures. Retail sales bounced back by 11.1% as of September 2022 YTD. Supported by a return to office, Other City Area rents are expected to increase by 1.5% y-o-y in 2023. Fuelled by inflation and a limited supply of prime retail space, tightly vacant suburban prime retail spaces remain sought after by retailers and the market is expected to achieve a 3.8% y-o-y growth in 2022 and 2.0% y-o-y in 2023.
Overall, while the economy has reopened, retailers are facing higher operating costs from manpower shortages and higher energy and food costs. Additionally, an impending step-up in government service taxes and consumers front-loading their spending for big-ticket items in 2022 may slow down retail sales growth in the next two years.
Private residential prices have risen 8.2% in the first three quarters of 2022 and are poised to end the year about 9% higher. Sales volumes (excluding Executive Condos) have also registered a relatively strong performance, with an expected 23,000-24,000 units sold in 2022. However, financing costs, an uncertain economic outlook and another round of cooling measures in September 2022 have dampened demand as some buyers might hold their purchases. As such, total private residential volumes in 2023 could moderate to below 20,000 units. Rent growth is expected to ease in 2023 as an influx of new supply enters the market.
Nonetheless, dampened private residential demand is balanced by a robust rental market, low levels of unsold inventory and rising property replacement costs. The private residential rental market has been the star outperformer amongst all other property segments, with rents growing by 20.8% in the first three quarters of 2022. The robust growth in rents was driven by limited supply, transient leasing demand due to construction delays of new homes in 2020 and 2021, and higher expat demand. Private residential rents are expected to grow by up to 5% in 2023.
As inbound tourism further improves in 2023, hotel revenues are expected to recover. In September 2022, hotels saw multi-year monthly highs for average room rate (ARR), revenue per room (RevPAR), and occupancy rates due to the Singapore F1 Night Race. However, despite an expected recovery in tourists and a steady pipeline of events, we expect RevPAR to inch higher towards $186.15 in 2023 but to stay below pre-pandemic levels. RevPAR may only return to pre-pandemic levels in 2024 or later.
Hotel room supply is expected to grow by 3.3% y-o-y in 2023, which would bring the total number of rooms to higher than pre-pandemic levels. With international visitor arrivals still below pre-pandemic levels, current labour constraints and rising operating costs, new hotels could open in phases in tandem with recovering demand, limiting the total actual supply of rooms coming into the market.
It has been a year of two halves for Singapore’s investment sales market. While investment sales are poised to reach a three-year high, investment sales in the latter half of 2022 have slowed significantly compared to a spectacular first half. We expect this slowdown to persist in 2023 due to the persisting divide between buyers and sellers. Buyers remain challenged by rising financing costs and investment justification. given Singapore’s low property yields, while cash-rich or non-yield-sensitive investors remain on the lookout for deals even though there is a preference for longer-tenured assets.
Nonetheless, total investment volumes have reached $26.9 billion in the first three quarters of 2022 and could surpass $30 billion for the whole year, depending on the success of potential deals in the pipeline. Institution investment demand could move towards high-yielding products, such as industrial properties. The private residential market could also drive investment volumes in 2023 as it is a build-to-sell market and less sensitive to yield. However, developers are increasingly cautious and recent acquisitions reflected a selective appetite towards small-medium sites or more prudent bids for large sites, given increased development risks due to an overhang of cooling measures and heightened interest rates. As such, Singapore investment sales in 2023 could be characterised as smaller ticket size deals as larger deals remain challenging to complete.