Market takes a pause on the back of new cooling measures and dearth of new launches
New sales volumes plunged 68.4% qoq in Q4 2022 with only 690 units sold, on the back of a dearth of new launches. Developers only launched 504 units in Q4 2022, as compared to 1,455 units in Q3 2022. Developers held back launches due to festive activities in December and January, and to evaluate buying demand and adjust marketing strategy post-cooling measures. Similarly, secondary market sales volumes (including resale and sub-sale) fell in Q4 2022 amidst rising macroeconomic uncertainties. Secondary market sales volumes decreased by 26.8% qoq in Q4 2022. For the whole of 2022, total private residential volumes reached 2,094 units, about 34.2% yoy lower as compared to 2021. The fall in volumes were due to lower levels of new launches and cooling measures announced in Dec 2021 and Sept 2022, which led to a market pull-back in the first and last quarter of 2022.
Private residential property prices grew 0.4% qoq in Q4 2022 alongside the slowing sales volume. Non-landed and landed residential prices grew by 0.3% and 0.6% qoq respectively in Q4 2022.
Non-landed price growth was led by the Rest of Central Region (RCR) and the Core Central Region (CCR) where prices climbed 3.1% qoq and 0.7% qoq respectively in Q4 2022. Outside Central Region (OCR) prices corrected 2.6% qoq in Q4 2022, after a 7.5% growth in Q3 2022. For the whole of 2022, private residential property prices in RCR outperformed with 9.7% yoy growth, followed by OCR prices at 9.3% yoy growth. CCR prices grew by 4.8% yoy in 2022. RCR and OCR non-landed prices were bolstered by the strong performance of several new launches such as AMO Residences, Lentor Modern, Piccadilly Grand which achieved benchmark prices in their respective vicinities.
Developers’ remain cautious
Unsold inventory increased by 2.4% during Q4 2022, reversing the -1.9% decline rise in the previous quarter. Nonetheless, unsold stock stayed low at 16,152 units in Q4 2022 as compared to a five-year annual average of 25,020 units. Despite still-low inventory levels, developers have remained cautious and slowed land acquisition activities given an uncertain macro environment and heightened development risks. The performance of a slew of new launches in 2023 would be a litmus test for buyer demand amidst current headwinds. A favourable market response (to new launches in 2023), could give developers more confidence to replenish their landbanks in 2023.
Residential rents remain on the uptrend
Private residential rents continued to grow robustly by 7.4% qoq in Q4 2022, after registering a solid increase of 8.6% in the previous quarter. Private residential rents have risen for a nine consecutive quarter with 42.7% cumulative growth since Q3 2020. For the whole 2022, rents have gone up across all three market segments, with mass-market OCR rents outperforming at 31.8% yoy, followed by the mid-tier RCR (30.3%) and high-end CCR (28.2%). Islandwide private residential vacancy rates tightened to 5.5% in Q4 2022 from 5.7% in the previous quarter.
About 9,526 private residential units have been completed for the whole of 2022 – below the 10-year (2013-2022) annual average of 12,593 units. However, increasing tenants’ resistance and higher levels of completions of about 17,427 units, in 2023 would slow rental growth in 2023. New completions post 2023, is expected to taper off, with new completions in 2024, 2025 and 2026 to come up to only about 11,000, 9,000 and 6,000 units respectively.
Coming off from a robust 2022
The private residential market had a robust 2022, with overall private residential prices and rents increasing by 8.6% yoy and 29.7% yoy respectively. The market could surprise on the upside in Q1 2023, as developers push out new launches catering to resilient buying demand amidst still-low levels of unsold inventory. While the economic outlook for 2023 has dimmed, economic indicators such as unemployment levels remain tight, supporting buyer demand. A tight labour market should outweigh the effects of rising interest rates on buyer demand. Also, HDB resale prices continue to rise, albeit at a slower pace, and would sustain HDB buyer demand. Developers are also expected to hold on to their asking prices amidst heightened construction costs. Also, a robust private residential rental market will support holding power in the market. In sum, barring an unexpected deterioration in economic conditions, we are cautiously optimistic that private residential prices could trend higher, by up to 3% in 2023.
Market Growth To Moderate
Central Region office rents rose for a fifth straight quarter at 5.1% qoq in Q4 2022, the highest quarterly growth since Q1 2011 at 5.4%. This growth was driven by the Central Area office rents that grew 6.6% qoq in Q4 2022, offsetting a decline in Fringe Area office rents of -4.0% qoq. Backed by a full-scale economic reopening and the transition back-to-office, office rents in Central Region grew by 11.7% yoy for the whole of 2022, markedly higher than the 1.9% in 2021. Central Region office rents are currently at a seventh year high.
Nevertheless, the office rental growth in Central Region is expected to slow. A weakening global economy, tightened financing conditions and a pull-back in tech demand would soften office demand and would lead to slower office rental growth going forward.
Although islandwide office vacancy rate tightened for a fourth consecutive quarter to 11.3% in Q4 2022, from 11.7% in the preceding quarter, this was mainly due to the islandwide office net supply falling to -248,000 sf in Q4 2022. Notably, Islandwide office net demand has lowered from 258,000 sf in each of the previous two quarters to 97,000 sf in Q4 2022, driven by a negative office net demand in the Fringe and Rest of Central areas. For the whole of 2022, islandwide office net demand has rebounded to 474,000 sf, a relatively solid performance as compared to -614,000 sf for 2021. The Downcore Core office net demand swung back to positive territory, registering 291,000 sf for the whole of 2022, compared to -958,000 sf in 2021.
The Singapore office market is anchored by stable fundamentals despite a weaker outlook. Office demand, especially in the Downtown Core that has the largest concentration of higher-grade offices, remains underpinned by a flight to quality and limited supply of Grade A offices over the mid-term. A slowdown in tech demand could be partially mitigated by demand from other sectors such as finance and professional services. Singapore remains attractive as a global business hub for businesses looking to expand in Asia Pacific.
Therefore, the overall office rents are still expected to rise in 2023, albeit at a much slower pace, given a tight supply situation, resilient office demand and higher inflation. Property operating costs are poised to increase amidst higher inflation and landlords are expected to pass on costs to tenants.
With stronger economic headwinds and higher office rents in the Central Area, some occupiers might be looking towards the more cost-efficient office spaces, and this could help to bolster Grade A office demand in the Fringe Area or Outside Central Region.
Cautiously Optimistic Amidst Stronger Downward Pressures
Central Region retail rents continued to decline at 1.1% qoq in Q4 2022, despite Central Region vacancy rates has tightened for a third consecutive quarter to 8.7% in Q4 2022, the lowest vacancy rate since Q1 2020 (8.6%). The fall in rents could due to lower achievable rents at non-prime retail malls amidst a two-tier retail market where the top retail malls are able to attract most consumer footfalls.
Meanwhile, retailers are regaining confidence to expand given an ongoing tourism recovery, a return of office crowds and the comeback of large-scale events. Central Region retail net demand reached 710,000 sf for the whole of 2022, extending positive net demand of 560,000 sf in 2021. This improvement in retail net demand in Central Region came on the back of a gradual recovery of footfall after the major easing of Covid measures.
The Orchard retail vacancy rate tightened again from 10.8% in the previous quarter to 9.8% in Q4 2022, the lowest vacancy rate in nine quarters. The demand for retail spaces in Orchard has picked up with Orchard net demand accumulated to 129,000 sf for 2022, higher than the 32,000 sf in 2021.
The demand from luxury retail brands has been particularly resilient in Orchard. Many luxury brands have expanded or renovated their current outlets in Orchard to enhance the shopping experience. Amongst them were Saint Laurent and Salvatore Ferragamo that opened at Paragon in Q4 2022. In the same quarter and same mall, German leather goods label Aigner also reopened a flagship store after six years. Top-tier premium brands could be largely inflation-proof as they appeal to high-income buyers who are less price-sensitive.
Retail vacancy rates Outside Central Region tightened from 5.1% in the preceding quarter to 4.0% in Q4 2022, the lowest vacancy rate since Q3 2014 at 3.8%. This came with retail net demand in Outside Central Region rising to 377,000 sf and exceeding its retail net supply of 150,000 sf in Q4 2022. Retail spaces Outside Central Region are consistently sought after given steady footfall due to the prevalence of hybrid work and consumers shopping closer to homes.
Overall, Singapore’s retail market is on a recovery track. The islandwide retail vacancy rate tightened for a third straight quarter to 7.1% in Q4 2022, a lowest vacancy rate since the pre-Covid rate of 7.0% in Q3 2015. For the whole 2022, islandwide retail net demand stayed relatively strong at 990,000 sf, after amassing to about 1 million sf in the previous year. New retail supply is limited and China’s ongoing reopening could catalyse retail demand, especially in Orchard. However, the retail market remains challenged by potentially weaker consumer sentiments and spending due to weaker economic growth, higher prices and higher outbound expenditure.
We are cautiously optimistic that central region retail rents could bottom out in 2023 amidst lower vacancy rates.