CBRE Commentary on URA Q1 2022 Real Estate Statistics
The positive momentum from end-2021 carried over to Q1 2022 as Singapore remained on the path to reopen its economy.
22 Apr 2022
Ms Tricia Song (宋明蔚), Head of Research, Southeast Asia, CBRE
• The positive momentum from end-2021 carried over to Q1 2022 as Singapore remained on the path to reopen its economy. Coupled with a tight supply situation, Q1 2022 saw an overall increase in office rents islandwide. Based on URA’s statistics, the URA office rental index in the Central Region increased for a second consecutive quarter, by 1.6% q-o-q in Q1 2022, after a 0.9% increase in Q4 2021.
• Rents in the Category 1 (a proxy for prime CBD) office space trended upwards by 1.6% q-o-q, driven by limited supply. This has led demand to spill over to the other submarkets. Further signs of a broad-based recovery were observed in the Category 2 office market, as its median rents increased by 3.9% q-o-q. (Refer to Table 1)
Table 1: Median rentals based on contract date
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.
2 Refers to the remaining office space in Singapore which are not included in “Category 1”
• Office rents tracked by CBRE Research echoed the same sentiment. Grade A Core CBD rents maintained a steady growth of 1.4% from the preceding quarter to S$10.95 psf/month, whilst Grade B Islandwide rents rose by some 1.4% q-o-q in Q1 2022, as vacancies declined cross the board.
• In Q1 2022, total islandwide office stock decreased by 17,000 sq. m., coming mainly from removal of stock collectively contributed by the Downtown Core (5,959 sq. m.), Rochor (3,656 sq. m.) and Yishun (3,738 sq. m.). Islandwide office saw a negative net absorption of 13,000 sq. m. in Q1 2022, compared to the -10,000 sq. m. in Q4 2021. Due to the slight reduction in overall available stock, islandwide vacancy rate of office space remained unchanged at 12.8%.
• CBRE Research notes that leasing activity in the CBD remains the focus of interest, while fringe and decentralised activity levels are picking up. Although non-banking financial sector and tech companies remain the main demand drivers this quarter, manufacturing and distribution sectors from pharmaceutical and FMCG companies have also contributed to leasing activity in Q1 2022.
• The office sector is poised to benefit from a growth in office demand as workplace measures were further relaxed and leasing enquiries are expected to increase further. While hybrid working could keep the overall office demand footprint below pre-pandemic levels, leasing demand is expected to continue, driven by rapid expansion in demand from agile space, technology and non-bank financial sectors, and limited new supply. Rental growth should gain momentum in the coming quarters and CBRE Research expects Core CBD (Grade A) rents to grow by 6.9% y-o-y for the whole of 2022.
• The retail market continued to face uncertainty in Q1 2022, as social restrictions remained in place for most of the quarter. As a result, rentals of retail space in the Central region fell slightly by 0.4% q-o-q in Q1 2022, reversing the increase of 0.6% q-o-q in the previous quarter.
• According to CBRE Research, islandwide prime retail rents have also yet to fully recover, with rentals stabilising for the second consecutive quarter.
• Islandwide quarterly net absorption in the private retail segment was -150,695 sq. ft. in Q1 2022, reversing five consecutive quarters of positive net absorption. As a result, overall vacancy rate in the private retail space increased to 9.5% from 9.1% in the previous quarter. This was contributed mainly by the Downtown Core area which saw vacancy levels increase to 12.9% from 11.0%. The submarket has yet to see a full recovery in footfall from employees, and CBRE Research observed that some retailers are still adopting a wait-and-see approach. That said, with 75% of employees who can work from home now allowed to return to the workplace, demand for retail spaces in the Downtown Core area is expected to increase in the near-term.
• Unexpectedly, the OCR submarket experienced a slight negative net absorption, with vacancy rates increasing to 5.2% from 4.5%. While overall demand in the suburban market continues to be resilient, higher asking rents could have hit the threshold of some retailers, driving them to source for more affordable locations.
• Leasing activity continued to be stable in the Orchard, Rest of Central and Fringe areas, with all of them registering positive net absorption in Q1 2022. CBRE Research observed that there were more pop-up stores during the quarter, featuring collaborations and experiential concepts. F&B operators also entered the market to test out new concepts, while athleisure and furniture stores increased their presence to capitalise on strong local consumption.
• With domestic and border restrictions eased, business sentiments and retail sales are expected to improve as Singapore sees sustained economic growth and a return of tourist spending. Coupled with relatively limited new retail supply in the next few years, these should support a firmer recovery in rents after H2 2022. However, the retail sector will face additional challenges such as persistent rise in energy and raw material costs, as well as manpower shortages, which may curtail the pace of recovery in the coming quarters.
• Private home prices rose for the eighth straight quarter, but growth slowed sharply as the cooling measures implemented in mid-December took effect. The plateauing is largely in line with CBRE expectations.
• URA’s Q1 2022 private residential property price index registered a 0.7% q-o-q increase in Q1 2022, slightly higher than the initial flash estimate of 0.4% q-o-q. This still marks a sharp slowdown from the 5.0% surge in Q4 2021, largely on the back of cooling measures implemented from 16 December 2021, which included increases in Additional Buyer’s Stamp Duty (ABSD) and tightening of the Total Debt Servicing Ratio (TDSR). Private home prices have since risen 14.9% after bottoming in Q1 2020, at the onset of COVID-19.
• The price increase in Q1 2022 was mainly driven by landed properties which rose 4.2% q-o-q, compared to a 3.9% q-o-q rise in Q4 2021, displaying resilience despite cooling measures. The segment was supported by limited stock and sustained activity seen in the GCB market in Q1 2022. The quarter also saw the launch of strata-landed project, Belgravia Ace, which observed strong demand at its launch from local first-time and multi-generational homebuyers and upgraders. Based on Realis caveats on 22 April 2022, the project has moved 74 of its 107 total units (69.2%) at a median price of S$1,080 psf since its launch in January 2022.
• In contrast, overall prices of non-landed properties across all market segments saw a marginal 0.3% q-o-q decline in Q1 2022, a reversal after the 5.3% surge in Q1 2022. Prices of non-landed properties in the RCR and CCR decreased 2.7% and 0.1% q-o-q respectively, while the OCR outperformed with a 2.2% q-o-q increase. The mass market segment was largely supported by the upgraders’ market, where HDB resale price index showed a similar 2.3% increase q-o-q.
• The RCR price slump in Q1 2022 was likely due to a normalization in prices following the strong sales and price performance of Canninghill Piers in Q4 2021. Correspondingly, prices in the CCR market were undermined by the larger impact of cooling measures on investors and foreigners.
Table 2: Top 5 best-selling developer sales projects (excluding ECs) for Q1 2022
Source: URA, CBRE Research
*Sales status as of 22 Apr 2022, based on caveats from Realis as of 22 Apr 2022
• The year started on a quiet note due to the Chinese New Year seasonal lull. New launches in the quarter were limited to smaller boutique developments as developers adopted a wait-and-see approach after December 2021 cooling measures. Only 613 uncompleted private residential units (excl. ECs) were released for sale in Q1 2022, compared to 2,275 units in Q4 2021. Correspondingly, 1,825 new private residential homes (excluding ECs) were sold in Q1 2022, a 39.5% slump from the 3,018 units sold in Q4 2021 and below the 5-year quarterly average of 2,614 units. In the absence of major new launches, buyers largely held back on purchases to reassess the situation and re-evaluate their purchasing decisions. The three best performing projects were existing projects Normanton Park (260 units), The Florence Residence (92 units) and Dairy Farm Residences (72 units).
• Activity moderated in the resale market given the cooling measures. 3,377 resale units were transacted in Q1 2022, a 28.9% decline from Q4 2021’s 4,748 units. Given sluggish sales in the primary market, resale transactions made up 63.2% of total transactions in Q1 2022, a higher proportion compared with 59.9% in the previous quarter.
• In the absence of major new launches in Q1 2022, unsold inventory of uncompleted private residential units (excluding ECs) dwindled further to 14,087 units, from 14,154 units in Q4 2021. Including completed units however, unsold inventory rose marginally from 14,333 units to 14,362 units in Q1 2022. On the back of positive market conditions, it is likely that upcoming tenders of GLS sites will continue to see strong interest and stiff competition. Meanwhile, despite the higher ABSD imposed on developers, some developers may still turn to private en-bloc sites selectively, if they fail to secure GLS sites or do not find the available GLS sites attractive.
• Rentals of private residential properties increased at a faster pace of 4.2% in Q1 2022 compared to the 2.6% increase seen in Q4 2021, due to construction delays and higher demand. Only 819 private homes were completed in Q1 2022. While the labour situation in the construction sector has improved alongside the easing of border controls, supply chain disruptions due to the ongoing Russia-Ukraine conflict could have contributed to the persistence of construction delays. Work-from-home trends, new homeowners waiting for their new homes, and increased foreigner arrivals have continued to drive up demand and rents in the quarter. Median rentals for non-landed private units (excl. ECs) island wide rose from S$3.63 psf in Q4 2021 to S$3.79 psf in Q1 2022 despite a fall in leasing volume from 22,603 to 20,913 contracts over the same period: likely due to the Chinese New Year lull. Correspondingly, overall vacancy rate decreased significantly from 6.0% in Q4 2021 to 5.3% in Q1 2022.
• Looking ahead, demand in the housing market is likely to remain relatively subdued in Q2 2022 as buyers hold back on their purchases to reassess and understand the impact of the recent round of cooling measures. However, sales volumes could pick up substantially on the back of attractive new launches in specific months and positive sentiment from increased capacity limited at show galleries and the full reopening of borders. Said developments could lift demand for new private homes going forward. In the short-term, the Singapore residential market could also benefit marginally from safe-haven flows amid heightened geopolitical uncertainty associated with the ongoing Russia-Ukraine conflict.
• In the rental market, rents are poised to rise further even as construction delays should be easing, with 10,401 new homes targeted to complete for the rest of 2022. The higher ABSD rates could result in more sellers renting interim homes while waiting for their new homes to be completed. Furthermore, visitor arrivals have seen an uptick since Singapore fully reopened its borders, and the rise in number of expatriates seeking accommodation in the months ahead should increase leasing demand and bode well for the rental market. CBRE expects average private home rents to increase 10% in 2022, similar to 2021’s 9.9%.
• On the other hand, given the recent cooling measures, CBRE Research expects property price growth in 2022 to moderate from 2021’s 10.6%. Prices could increase by up to 3% in 2022. Nonetheless, prices are unlikely to collapse due to strong economic fundamentals, near record low unsold inventory (14,362 units as of Q1 2022) and high occupancies.
• In terms of primary and secondary market sales volumes, in view of the limited new launch pipeline in 2022, CBRE Research expects new home sales to trend down from 2021’s 13,027 units to a normalised 9,000 – 10,000 units. Similarly, secondary sales could match primary sales at 9,000 – 10,000 units.END
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2020 revenue). The company has more than 100,000 employees serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.sg.
Savills is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows and now has over 700 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2020 revenue). The company has more than 100,000 employees serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at https://www.cbre.com.