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JLL expects retailer sentiment to remain dented, while demand for retail space will continue to be depressed, which will keep rents for 2H 2020 on the downtrend.
Despite the easing of circuit breaker measures, JLL expects Singapore’s retail, office and industrial property markets to face more pressure for the rest of the year, reported Singapore Business Review.
JLL anticipates more retail closures in the coming quarters as landlord and/or government support for retailers ease, while the Temporary Deferment Bill can no longer protect businesses from their liabilities.
Moreover, there is the risk of new waves of COVID-19 outbreak which could trigger repeated lockdowns. Prolonged enforcement of safe-distancing measures could also happen, keeping operating costs elevated and curbing operating capacity.
With mass international travelling unlikely to be seen in the second half of 2020, Tay Huey Ying, Head of Research & Consultancy at JLL, expects retailer sentiment to remain dented, while demand for retail space will continue to be depressed. This will keep rents for 2H 2020 on the downtrend.
“On a brighter note, retailers with a deeper balance sheet and a medium-to-long-term perspective are likely to continue to anchor in Singapore as a gateway to Asia. The eventual successful containment of the COVID-19 outbreak would see the government lifting safe-distancing measures and travel restrictions, and reinvigorating economic activities,” Tay said.
This could lead to the return of retailer and consumer confidence as well as the resumption of business expansion. Occupier demand may also recover as foot traffic and retail sales increase alongside economic growth. And with the supply tightness, vacancy rate may also drop, supporting rent recovery by 2022.
Based on the Urban Redevelopment Authority’s (URA) Q2 real estate statistics, retail rental index for Central Region dropped 3.5% quarter-n-quarter, on the back of shrinking demand and increasing vacancies across all regions.
The drop in rent was steeper than Q1’s 2.3% quarter-on-quarter correction.
Over at the office leasing market, URA data showed that headline office rental index held steady during the quarter under review.
Looking deeper, the office rental index for the Central Area declined 2.3% quarter-on-quarter in Q2, following a 0.3% quarter-on-quarter increase in Q1.
Tay explained that the results are in line with JLL’s ground observations that Grade A CBD office space’s average monthly gross effective rents eased 3% quarter-on-quarter to $10.48 per sq ft (psf) in Q2, from Q1’s marginal correction of 0.1% quarter-on-quarter to $10.80 psf.
For 1H, JLL’s rent for Grade A CBD office space corrected to a moderate 3.1% from Q4 2019’s level of $10.81 psf.
JLL noted that the economic fallout may spillover in 2H, which could intensify rent corrections and bring this year’s CBD Grade A rent correction to about 12%.
Assuming economic recovery along with the successful management of Covid-19 spread domestically and globally, rent may potentially bottom in 2H and recover by 2022.
Meanwhile, the industrial property market saw prices and rents fall at a faster pace of 1.1% and 0.7% quarter-on-quarter, respectively, in Q2, showed JTC figures. The figures mark the biggest quarter-on-quarter drop in prices and rents since 2017, said JLL.
The drop came even as occupancy rate climbed 0.2% percentage points to 89.4% during the quarter. The slight increase in occupancy rate was primarily due to higher net absorptions from warehouse and single-user factory segments as well as fewer space completions on the back of disruptions to construction activities.
JLL noted that the healthy demand for warehouse space in Q2 was underpinned by renewals and short-term leasing requirements to accommodate food, medical supplies and consumer items, as movement controls and safety concerns fuelled an increase in stockpiling requirements and e-commerce activities.
Leasing enquiries, on the other hand, for business park space declined in Q2.
“In the coming quarters, continued macroeconomic headwinds are likely to see most businesses staying cautious on their space requirements,” said Tay as quoted by Singapore Business Review.
Stockpiling needs, however, may continue to prop up warehouse demand amidst risks of new waves of Covid-19 outbreak as well as repeated lockdown measures.
Nonetheless, she believes it may not be sufficient as occupiers will likely remain rent sensitive.
With this, JLL expects both prices and rents to continue to decline across all industrial property types over the next six months.
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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