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News Release

Singapore

JLL 2nd Quarter 2014 Real Estate Statistics

Rising office sector leads real estate market performance, while prime retail and business park segments moderate and residential sector continues in decline


​​​​​Singapore, 18 June 2014 - In 2nd quarter 2014, a business environment weighed down by higher costs and staffing constraints has impacted on demand for business space. In the prime retail and business park sectors, rental growth was marginal while capital values stagnated. Being the exception amongst business spaces, the office sector posted significant growth in rents as reflected by the 4 per cent upside in average rent for CBD offices. The trend of sustained demand from smaller space occupiers and tightening vacancies could result in CBD rents escalating 16 per cent for the whole of 2014. On the other hand, capital values of CBD offices are expected to grow at a slower pace due to rising yields. During the quarter, the residential market remained weak due to the effects of the Total Debt Servicing Ratio (TDSR) and other cooling measures resulting in average prime capital value declining 1.2 per cent while average prime rent fell 2.4 per cent on the back of slower leasing demand.

Dr Chua Yang Liang, Head of Research, South East Asia says: "The effects from the higher business costs as a result of the strong Singapore dollar and the stringent foreign employment policies continue to be felt in the retail market and increasingly the office sector as well. The recent gains in the office sector is largely a reflection of the short term demand and supply mismatch, and not sufficient to reverse the continual slowdown in the residential leasing market. These two underlying macroeconomic conditions – strong Singapore dollar and tight foreign employment policies – are likely to continue to cap the property market in the mid to long term if there are no affirmative actions to reverse these policies."  

Prime Residential

Average rental of Prime residential units in 2Q14 declined at a similar pace as the previous quarter, easing by 2.4 per cent q-o-q to SGD 4.09 per sq ft per month. The Luxury sector saw rents falling at a faster pace of -2.8 per cent q-o-q while the Typical Prime market recorded a milder decline of -2 per cent q-o-q. Said Dr Chua: "Companies continue to trim expatriate packages, with the leasing demand from the financial sector most noticeably affected." He added: "Compared to 2013 when average prime rental values kept mostly steady before easing in the last quarter, they have fallen -4.7 per cent in 1H14. A gradual decline can be expected for the rest of the year."

The TDSR framework has softened market sentiments and activity within the residential sector. After six quarters of declines of less than a percent each, average capital values in the prime residential market fell 1.2 per cent q-o-q to SGD 1,801 per sq ft in 2Q14 - deepening the -0.5 per cent q-o-q decline registered in 1Q14.

We hold our outlook that market activity will stay lacklustre in the near term as rents and capital values are likely to register a fall of 4 per cent – 8 per cent for the full year of 2014. Dr Chua opines: "Withdrawal of the myriad of market policies is unlikely until 2015 or when the market shows a marked correction of 8-10 per cent, whichever is sooner."

CBD Office

Average rental for CBD offices grew by 4.0 per cent q-o-q to SGD 9.96 per sq ft per month in 2Q14, marginally higher than the 3.9 per cent q-o-q rise seen in the previous quarter. As in 1Q14, the latest growth is also attributed to the stable take-up by occupiers amid tightening vacancies in the CBD as new supply remained limited. Dr Chua says: "The demand has been largely supported by small occupiers as well as some expansion by large-space firms in the consumer technology sector. This upside in rent is likely to continue through 2014 as the market recovers while the supply from new completions is not expected till 2016." 

Average capital value of CBD offices rose 0.5 per cent q-o-q to SGD 2,445 in 2Q14, unchanged from the moderate growth seen in the previous quarter. Increases in capital values of office space appear to be moderating as investors price in a potential rise in interest rates which would result in yield expansion, notwithstanding the firm rental growth.

Going forward, firms are expected to continue showing a preference for good quality space in the CBD which should support demand for space in upcoming new offices. As such, average rental of CBD offices is likely to continue to maintain its growth pace of around 16 per cent y-o-y by end-2014. Average capital value of CBD offices is likely to post moderate growth as investors increasingly seek higher yields.

Prime Retail

Rents for prime level retail space in the Orchard sub-market grew a marginal 0.4 per cent q-o-q to SGD 37.82 per sq ft per month in 2Q14. While there was sustained interest in Grade A space from domestic as well as international new-to-market retailers looking for increased exposure within the South East Asia region, high business costs, tighter labour restrictions and sluggish retail sales impeded expansion plans.  While the Prime Orchard Road retail belt remains an attractive location for many, the suburban retail sub-market is also providing growth opportunities for retailers seeking to expand their consumer base. New supply in the Orchard Road sub-market remains limited for the next few years with no new addition in 2014, while 268 Orchard is slated to open in 1Q15. This will contribute to prime level rents in the Orchard sub-market possibly increasing 1.2 per cent to SGD 38.11 per sq ft in 2014.

Capital values of prime level retail space in the Orchard Road sub-market remained flat at SGD 4,135 per sq ft in 2Q14, in keeping with muted rental growth. They are forecasted to post a subdued growth of 1.2 per cent for the whole of 2014, since rents are only expected to rise marginally.

Business Parks

Business park rents held steady with a marginal 0.15 per cent increase to SGD 3.86 per sq ft per month in 2Q14, growing at a slower pace than 1Q14. While landlords' asking rents remained firm expecting spill-over benefits from a rising office market, demand for space for back-office use by financial institutions is observed to be weakening, with no new enquires to expand into Business Parks. This has been attributable to the labour crunch situation, where employers have found it difficult to either secure locals or employment passes for expats to fill up positions.

Capital value of business park space remained stable at SGD 505 per sq ft in the absence of investment transactions. Institutional investors, however, remain on a lookout for assets occupied by reputable anchor tenants secured with long term leases.

Business park rents have risen by 2.1 per cent in 1H14 while full year growth is estimated at a moderate 5 per cent, due to lack of back-office demand and oncoming new supply. The new supply pipeline is mitigated by the fact that 37 per cent of it comprises Built-To-Suit developments which are pre-committed.

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