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The coronavirus (Covid-19) outbreak poses near-term risk to Singapore’s retail and industrial property sector, revealed a Colliers International report.
It noted that both sectors showed signs of bottoming and will likely continue to stabilise into 2020. Downside risks, however, persist while the chance of recovery appears to be marginal, especially for the retail property sector which remains vulnerable.
In fact, rents on Orchard Road dropped 1.3% year-on-year in 2019, while remaining flat at regional centres.
Tricia Song, head of research for Singapore at Colliers International, expects rents to stabilise and gradually recover as new supply pipeline moderates over 2020 to 2024.
“Nonetheless, retail sales remain fragile. Excluding motor vehicles, the retail sales declined 1.2% in 2019,” she said.
“In the near-term, the outbreak of coronavirus (COVID-19) could dampen consumer sentiment and delay a recovery. The situation is evolving, and no one really knows how this will turn out at this point; the outbreak could be the proverbial black swan that will hurt the retail sector.”
And with retail tenants typically signing two-year leases in which rents are locked in during said period, rents do not necessarily reflect retail sales volatility.
In the longer term, in the absence of a protracted downturn, Colliers Research expects prime rents within Orchard Road to gradually recover with “potential boost from Orchard Road rejuvenation plans as well as a recovery in visitor arrivals and tourism receipts”.
Investment volumes, on the other hand, contracted 6.7% in the second half of 2019 over the first half of 2019 on a high base. Overall retail property transaction volumes registered a decade high last year as it soared 204% to $4.1 billion. Colliers noted that it was driven by keen investor interest as well as mergers and acquisitions.
Last year’s major transactions included Rivervale Mall and Chinatown Point in 1H 2019 and Duo Galleria, The Star Vista and Liang Court in 2H 2019.
Separately, the city-state’s industrial property sector continued to navigate the economic headwinds, remaining soft in 2H 2019, especially within the factory space and warehouse segments.
Colliers’ data showed that average monthly gross rents for factories declined by around 1.8% year-on-year to $1.67 per sq ft per month (psf pm) as at end-2019, while warehouse and logistics rents eased 1.6% year-on-year to $1.23 psf pm.
“The COVID-19 outbreak could hit manufacturers with disruption to the global supply chain in the near-term. Coupled with ample new stock, factory rents would likely remain under pressure. In general, we forecast continued two-tier performance between older lower-specifications and newer higher-specifications facilities,” said Dominic Peters, senior director of industrial services at Colliers International.
However, he expects centrally-located business parks and high-spec buildings with good amenities to continue to attract healthy demand “while those older and further away from MRT stations or in suburban areas could face more pressure”.
Rents at business parks increased by almost 1.4% year-on-year to $4.37 psf pm as at end-2019 from $4.31 psf pm at end-2018. Rents of independent high-spec space rose by around 1.4% year-on-year to $2.94 psf pm over the same period.
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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg