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Real estate investment sales in Singapore plummeted 53.5% quarter-on-quarter to $1.9 billion in the second quarter of 2020, from $1.9 billion in the previous quarter.
With investors adopting a wait-and-see stance towards investment decisions, real estate investment sales in Singapore plummeted 53.5% quarter-on-quarter to $1.9 billion in the second quarter of 2020, from $1.9 billion in the previous quarter, revealed an Edmund Tie report.
Office (and office mixed-use) investment sales accounted for 71.5% of the quarter’s total investment sales. The office market saw investment sales jump 68.9% quarter-on-quarter to $1.3 billion
“This was mainly contributed by the sale of 30% and 50% stakes of TripleOne Somerset and AXA Tower respectively, as well as sale of retail and office units at 30 Raffles Place,” said the report.
Retail investment sales doubled to $43 million in Q2 2020 from $22.2 million in Q1 2020, even as activity within the retail investment market remained lacklustre with only one transaction.
“In Q2 2020, a freehold retail unit at St Martin’s Apartment was reportedly sold to D’League Pte Ltd, which holds the Asia distributorship for Richard Mille, and is likely to become another watch showroom for the watch brand.” Since the retail unit constitutes about 42% share value in the development, the buyer will be pivotal to any collective sale of the development.
Industrial investment sales, on the other hand, plunged 80.9% quarter-on-quarter to $174.3 million during the quarter under review.
“This was largely contributed by two transactions: Luxasia Building ($66.1 million, or $772 per sq ft (psf) land area) and 65 Tech Park Crescent ($25 million, or $291 psf land area),” said Edmund Tie.
“However, this sum excluded the acquisition of a four-storey warehouse at 11 Sunview Way by Deutsche Bank for an undisclosed sum, which is understood to be within the range of $75 million to $100 million,” it added.
Should the said transaction have been included, the drop in industrial sales would have been lesser. The report noted that demand for warehouse space continued to be strong, due to disruption to supply chains during the Covid-19 pandemic, leading to tenants needing additional space for stockpiling and growing demand for e-commerce.
Meanwhile, Edmund Tie said a combination of factors – including telecommuting and economic contraction – have “exerted downward pressure on occupancy rates and rents in the office sector”.
It estimates that occupancy rates of office developments island-wide contracted 0.8 percentage points quarter-on-quarter to 92.8% in Q2 2020.
The report attributed the decline in occupancy rates to the “contraction of demand for office space in the CBD and CBD Fringe subzones with net absorption reporting negative figures of 463,000 sq ft and 12,000 sq ft respectively”.
Rental rates for office space across all locations slipped between 0.4% to 2%. The Shenton Way/Robinson Road/Tanjong Pagar subzone registered the greatest rental contraction at 2% quarter-on-quarter.
Edmund Tie noted that Singapore’s office leasing market is facing downward pressure
“Companies are currently working hard to shore up their cash flows as business sentiment weakens substantially. As enterprises currently plan Safe Management practices mandated by the Ministry of Manpower, they are still weighing their options on lease renewal and expansion plans in the longer term. In our view, risks are on the downside for take-up and rents for the rest of 2020,” it said.
Over at the industrial market, JTC estimates showed that island-wide net absorption expanded to 1.6 million sq ft in Q2 2020 from 1.3 million sq ft in the previous quarter. Net supply, however, reversed to -301,000 sq ft in Q2 2020 from 2.1 million sq ft in Q1 2020.
The quarter saw occupancy rate for warehouse space increase 0.8 percentage points quarter-on-quarter to 88.3%, primarily due to stockpiling by supermarkets and the hike in e-commerce sales.
Edmund Tie revealed that the monthly average rental rates for most industrial market segments decline quarter-on-quarter during the period under review due to weak manufacturing performance.
“The location of the developments is a key factor in determining the extent of decline of rents,” it said. The average monthly rents for business parks, for instance, within the Central Region increased, while those in the suburban areas fell 0.2% quarter-on-quarter in Q2 2020.
“As companies review their demand needs and expansion plans in the wake of the weakened economic outlook, we expect the impact on the industrial property market to be felt in the next few quarters,” said Edmund Tie.
“Overall rents of factories are likely to post an overall decline for 2020. Rents in the business park and hi-tech sectors could also ease further in the near term owing to the pandemic.”
Nonetheless, it expects the warehouse sector to emerge as the bright spot for the sector, as the rising online sales and hike in groceries sales incentivise retailers to expand their warehouse facilities.
At the retail property market, island-wide net absorption dropped further from -561,000 sq ft in Q1 2020 to -798,000 sq ft in Q2 2020, showed URA statistics.
Monthly retail rents also contracted further during the quarter amidst the preventive measures taken by the government to contain the Covid-19 pandemic.
Upper-storey monthly average rents within the Orchard/Scotts Road “declined the most as compared to the other subzones, largely due to the lack of visitor arrivals”, while average monthly rents for fist-storey retail within the fringe/suburban areas held up relatively well during the quarter, due to their proximity to residential estates.
Looking ahead, Edmund Tie believes it will take some time before the retail market “finds a footing”.
“The poor business climate fuelled by the increase in retrenchments as well as the lack of tourism spending will weigh on the luxury and discretionary retail segments, while the sales of groceries retailers and food services are anticipated to grow,” it said.
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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