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Colliers is confident that the city-state can maintain its position as one of the popular occupier destinations within the region, even as this year’s citywide rent is anticipated to drop 5% due to limited supply.
Colliers International expects medium-term office rent in Singapore to register a five-year average annual growth of 3.3%, reported Singapore Business Review.
Grade A offices continue to be attractive, posting a yield of 3.9%.
With this, Colliers is confident that the city-state can maintain its position as one of the popular occupier destinations within the region, even as this year’s citywide rent is anticipated to drop 5% due to limited supply. Rent is forecasted to recover in 2021, driving five-year average growth of 3.3%.
Meanwhile, near-term income growth prospects for the retail and hotel sectors are poor because of travel bans. APAC markets witnessed an uneven progression in Q2, with markets that were impacted first showing signs of recovery.
For the first five months of 2020, average occupancy stood at around 38%, but was surpassed in certain markets such as Singapore, where hotels were used as quarantine facilities. With the lifting of lockdowns or states of emergency, the industry is expected to recover gradually over the rest of 2020.
Colliers expects Singapore’s hotel sector to recover once the pandemic subsides, as tourist arrivals will probably pick-up.
It also believes demand drivers for hospitality in Singapore will remain intact in the longer term, which includes tight near-term supply as well as more tourist attractions.
Colliers notes, however, that the potential for income growth recovery for the retail sector is lower compared to the hotel sector. This is due to high occupancy costs, the growing threat from e-commerce and the desire of customers for greater “experiential” shopping – which traditional retailers found difficult to meet.
While the retail sector may expect a short-term rebound once the pandemic subsides, its sales growth in medium-term view remains doubtful.
Thus, retail property vacancy in Singapore is forecasted to increase 0.5 percentage points (ppt) in 2020. It is predicted to lean towards 7% considering that new supply should remain limited, mainly in suburban and fringe areas. The average rents for ground-floor units are forecasted to fall by about 5% this year.
The retail sector will see a slower overall recovery as structural challenges remain. Hence, a rental decline in compound annual growth rate of 0.5% is expected for 2019 to 2024.
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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