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That said, there are pockets of opportunities for investors in both markets that will likely provide a decent yield.
The escalation of the US-China trade conflict and gloomy economic outlook could stifle any recovery in Singapore’s retail and industrial property markets in the near term, said Colliers International on Wednesday (14 August).
“With the dimmer economic outlook ahead we expect the retail and industrial property markets to face some pressure. A prolonged economic downturn, should it happen, will likely crimp consumer confidence, resulting in cutbacks on discretionary spending among households,” said Tricia Song, head of research for Singapore at Colliers International.
“Meanwhile, industrialists may be more cautious about their space needs and could shelf expansion plans. That said, there are pockets of opportunities for investors in both markets that will likely provide a decent yield.”
Retail rents remained weak in the first half of 2019, with the URA rental index for the central region dropping 1.7 percent. Colliers Research data also showed that ground-floor rents at Orchard Road fell 1.5 percent in the first half to $40.60 per sq ft per month (psf pm), while regional centre rents held flat at $33.60 psf pm.
Colliers noted that rental declines have moderated since early last year, and the large retail space completions since 2013 should taper off from next year, helping to support occupancy.
One of the malls set to open later in the year is PLQ Mall – Paya Lebar Quarters’ 340,000 sq ft retail component.
Island-wide retail vacancies fell 0.8 percentage point to 7.7 percent in H1 2019, likely due to the good take-up rates at Funan and Jewel at Changi. Colliers expects vacancy rate to continue to decline in 2020 to 2023 as supply eases.
Total retail investment sales transactions soared 137 percent to $2.13 billion in H1 2019, way higher compared to the $1.42 billion transacted for the whole of 2018.
“Headwinds prevail for the retail sector as the soft economy could impact the still-fragile consumer sentiment and dent any hopes of recovery in retail rents. On a more positive note, the surge in investment sales of retail malls during H1 2019 reflected rising optimism among investors,” said Song.
Separately, Singapore’s industrial real estate sector appears to have found its footing, with overall rents bottoming out, noted Colliers.
The deteriorating manufacturing and trade statistics, however, could put industrial rents and occupancy under new pressure.
Given the weaker trade conditions, leasing demand is anticipated to lag behind supply this year until 2021. This comes as annual net absorption for 2018 to 2023 is expected to come in at around 8.6 million sq ft, or 25 percent below the 10-year historical average.
“Industrialists have already become more cautious on their space requirements, renewals and expansion plans, preferring a wait-and-see approach given the gloomier economic outlook,” said Dominic Peters, senior director of industrial services at Colliers International.
“They would also be watching the US-China trade spat closely and assessing its potential impact on their business.”
With this, he advised landlords to “take this opportunity to consider upgrades and asset enhancements – especially for ageing properties”.
Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg
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