PROPERTY INSIGHTS

Occupier demand remains resilient

Singapore Quarter 3, 2012

Market Overview

Despite signs of a weaker economic environment,

investor sentiment picked up in Q3 2012 while occupier

demand in the commercial sectors remained resilient.

Prices in all housing segments rose at a faster rate

in Q3, except for the suburban leasehold non-landed

segment, with landed homes continuing to lead the price

increase (Figure 1). Barring any new cooling measures,

the low unemployment rate, coupled with low interest

rates and high liquidity will continue to support purchase

demand. Primary home sales (excluding executive

condominiums) in 2012 are estimated to exceed the

record sales of 16,292 units in 2010.

In contrast, retailers were cautious in committing

to new retail space as expansion plans were limited by

the tight labour market and weaker economic growth.

Average prime retail rents in Orchard/Scotts Road and

suburban areas stood unchanged in Q3 after posting

some growth in Q2.

A two-speed movement in office rents was observed

in Q3, with rents falling in the CBD while holding firm in

the CBD fringe areas. This was due to different tenant

profiles, varying occupancy rates and new supply in each

micro-market. While demand has softened primarily

amongst banks and financial services companies, the

slack has been picked up by non-financial sectors.

Figure 1

Resale residential price indices

60

80

100

120Q

3 09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Luxury freehold condominiumsSuburban leasehold condominiumsSuburban leasehold terrace houses

(Q1 2011=100)

Source: DTZ Research

Singapore avoids technical recession

Singapore avoided a technical recession in Q3

despite the economy shrinking 1.5% on a quarter-on-

quarter (q-o-q) seasonally adjusted annualised basis

due to an upward revision of Q2’s preliminary GDP

estimate (Figure 2).

The slower growth momentum in Q3 was mainly

due to a second consecutive q-o-q contraction in

the manufacturing sector, which declined by 3.9%,

compared to a contraction of 0.1% in Q2. The

manufacturing Purchasing Managers’ Index (PMI), a

forward-looking indicator, fell for three consecutive

months from 50.4 in June to 48.7 in September

due to a weaker electronics sector and a decline in

new orders from domestic and overseas markets,

suggesting that the manufacturing sector will remain

weak. In a similar trend, non-oil domestic exports

(NODX) contracted by 11% year-on-year (y-o-y) in

August (Figure 3).

For the rest of 2012, the Ministry of Trade and

Industry (MTI) expects the subdued global economic

environment to continue to weigh down on economic

growth. However, healthy expansion in the transport

engineering cluster and construction sector could

help support economic growth. The government in

October maintained its forecast of 1.5-2.5% for full-

year economic growth in 2012.

Inflation eases, labour market remains tight

The economic slowdown provided some relief for

price increases. The CPI rose by 3.9% y-o-y in August,

the lowest level in almost two years, following a 4.0%

y-o-y growth in July and 5.3% in June (Figure 4). Core

inflation, which excludes private road transport and

accommodation costs, fell to an 11-month low of 2.2%

in August from 2.4% in July.

Trends & Updates

Economic OverviewFigure 2

GDP growth rates

-20%

-10%

0%

10%

20%

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

GDP growth (y-o-y) GDP growth (q-o-q)

Source: MTI

Figure 3

Singapore PMI and NODX

-40%

-20%

0%

20%

40%

46

48

50

52

54

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan -

12

Feb-

12

Mar

-12

Apr -

12

May

-12

Jun-

12

Jul- 1

2

Aug-

12

*Sep

-12

PMI (LHS) NODX growth (y-o-y) (RHS)

Source: SIPMM, IE Singapore *NODX figures for Sep 12 are not available.

Figure 4

Inflation, interest rate and unemployment rate

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

*Q3

12

CPI change (y-o-y) 3-month SIBOR

Overall unemployment rate

Source: MTI, MAS, MOM *CPI figures for Q3 12 are based on Jul and Aug. Unemployment figures for Q3 12 are not available.

Despite signs of inflation receding, the Monetary

Authority of Singapore (MAS) expects core inflation

to face upward pressure from higher food and

services costs while overall inflation is likely to be

slightly above 4.5% in 2012 as a result of higher car

premiums. In particular, the tight labour market will

continue to support wage increases that will be passed

on to consumer prices. The overall unemployment

rate as at Q2 remained low at 2.0%. To contain these

inflationary pressures, the MAS in October maintained

their monetary policy stance of allowing a modest and

gradual appreciation of the SGD.

Low interest rates and abundant liquidity to

support purchase demand

Meanwhile, liquidity in the market is expected

to remain abundant after the US Federal Reserve

announced in September a fresh round of stimulus for

the sluggish US economy, also known as QE3, which

will continue as long as the outlook for the US labour

market does not improve substantially. It also expects

to keep interest rates low until at least mid-2015, later

than the previous expectation of late 2014. This will

continue to depress interest rates in Singapore, and

together with the abundant liquidity and tight labour

market, will support purchase demand in the property

market.

Residential

Prices increase at faster pace in Q3

Prices in all housing segments rose at a faster rate

in Q3, except for the suburban leasehold non-landed

segment. Resale prices of freehold apartments/

condominiums rose the most by 1.0% both in the

prime districts of 9, 10 and 11 and in the suburban

areas. This is double the Q2 increase of 0.5% in the

prime districts and 0.6% in the suburban areas. On

the other hand, leasehold suburban homes saw a

more subdued 0.5% q-o-q price increase, slightly

lower than the 0.6% increase in the previous

quarter (Figure 5).

The stronger increase in the freehold segment

is due to the closing gap between mid- and higher-

end resale units and new units in the mass market,

as more buyers are finding that these resale units

offer better value and generally have bigger floor

areas than the new ones.

Prices of landed homes rise the most

Landed homes continued to lead the price

increase as buyers found more value in the larger

floor areas and are driven by the scarcity fear factor

that prices will rise beyond their reach. Average

resale prices of freehold landed homes in the prime

districts rose 1.2% in Q3, higher than the 1.0% rise

in Q2. In the suburban areas, prices rose even more

by 2.4% on average, double the 1.2% increase in Q2.

Figure 5

Resale residential price indices

70

80

90

100

110

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Luxury freehold condominiumsPrime freehold condominiumsSuburban leasehold condominiums

(Q1 2011=100)

Source: DTZ Research

The increase is higher in the case of semi-detached

and terrace houses, as the much higher prices of

detached houses constrained the rise in prices.

Luxury home prices stabilise

Luxury home prices, which had fallen 2.0%

over the past three quarters, stabilised in Q3.

More activity and interest is expected in the luxury

housing market for the next one to two quarters

with a few projects gearing up for launch. They will

attract more attention to this segment, which has

been low on buyers’ radar screens with hardly any

major new launches in the past one to two years.

2012 primary home sales to exceed 2010 record

Buying sentiment in the primary market remained

positive. Although the number of launches in both

July and August was below the monthly average

of about 2,200 units in H1, take-up rates for both

months remained healthy at above 100% (Figure

6). Top selling projects in Q3 include Parc Centros

and Parc Olympia which are priced competitively

compared to nearby projects (Table 1). We

expect primary homes sales (excluding executive

condominiums) in 2012 to be between 20,000 and

23,000 units, topping the record of 16,292 units in

2010.

Retail

Retailers cautious

With regional economies slowing down and

the tightening labour market limiting expansion,

retailers remain cautious in committing to new retail

space. Some retailers are also opening new stores

at the expense of closing down less profitable ones,

delaying their expansion plans.

Amid the cautious sentiment, retail landlords are

continually introducing new international retailers

who can bring in shopper traffic and differentiate

their tenant mix from other shopping centres. In

a bid to attract such tenants, they could be more

negotiable in terms of rents as these international

retailers are cost conscious and not necessarily

willing to pay high rents.

Rents hold firm while resale prices soar

The average gross fixed rent of prime retail

space in Orchard/Scotts Road and the suburban

areas stood unchanged at $30.33 per sq ft per

month and $28.35 per sq ft per month respectively

after posting some growth in the previous quarter.

On the other hand, capital values of prime retail

space in Orchard/Scotts Road and the suburban

areas posted the strongest growth seen for the

past one year as cooling measures in the residential

sector diverted funds to the commercial and

industrial sectors. In addition, higher selling prices

set by new developments in the primary market

have caused investors to look for value buys in

the secondary market. As a result, the average

Table 1

Selected new launches in Q3 2012

Development Tenure Price range ($ per sq ft)

Parc Centros 99 yrs 751 – 1,305

V on Shenton 99 yrs 1,673 – 2,752

Parc Olympia 99 yrs 621 – 1,112

Leedon Residence FH 1,530 – 2,495

One Dusun Residences FH 1,208 – 1,832

Source: URA, DTZ Research

Development Tenure Price range ($ per sq ft)

Parc Centros 99 yrs 751 - 1,305

Von Shenton 99 yrs 1,673 - 2,752

Parc Olympia 99 yrs 621 - 1,112

Leedon Residence FH 1,530 - 2,495

One Dusun Residences FH 1,208 - 1,832

Table 1

Selected new launches in Q3 2012

Development Tenure Price range ($ per sq ft)

Parc Centros 99 yrs 751 – 1,305

V on Shenton 99 yrs 1,673 – 2,752

Parc Olympia 99 yrs 621 – 1,112

Leedon Residence FH 1,530 – 2,495

One Dusun Residences FH 1,208 – 1,832

Source: URA, DTZ Research

Figure 6

Primary and secondary home sales (excluding executive condominiums), units

0

1,000

2,000

3,000

4,000

5,000

Aug-

10

Nov

-10

Feb-

11

May

-11

Aug -

11

Nov

-11

Feb-

12

May

-12

Aug-

12

Primary sales Secondary sales Units launched

Source: URA REALIS, 2 October, DTZ Research

capital value of prime resale retail units in Orchard/

Scotts Road and the suburban areas rose 5.7% and

3.6% q-o-q respectively. With rental and capital

values moving in opposite directions, the average

yield of prime retail space in Orchard/Scotts Road

correspondingly fell by 25 basis points q-o-q to

4.6%.

Yield expected to compress further

Retail rents are expected to remain more or less

static for the rest of the year and next year due to

cautious retailer demand and impending new supply

(Figure 7). Around 46% (221,000 sq ft) of the entire

pipeline supply for Orchard/Scotts Road from Q4

2012 to 2016 will be completed in 2013 (Figure 8 and

Table 2). In contrast, interest in retail strata units

is likely to be fuelled by low interest rates and high

liquidity. This will cause the retail yield to compress

further.

Bulk of suburban pipeline supply to complete in

next year

Elsewhere in the suburban areas, the bulk of the

pipeline supply is also expected to be completed in

2013. This is largely due to Bedok Mall as well as the

major shopping centres in Jurong Gateway. Half of

the entire pipeline supply in the suburban areas or

1.3 million sq ft (NLA) is expected to be completed

in 2013.

Figure 8

Retail development pipeline including projects on awarded GLS sites, sq ft (million)

0.0

0.5

1.0

1.5

2.0

2012 2013 2014 2015 2016

Orchard/Scotts Rd Other city areasSuburban areas Completed in Q1-Q3 2012

Source: URA, DTZ Research

Table 2

Upcoming major retail projects

Name of development Area Est NLA (sq ft)

Est TOP Year

Redevelopment of Atrium@Orchard

Orchard/Scotts Road

127,000 2012

Westgate Suburban areas 426,000 2013

JEM Suburban areas 331,000 2013

Bedok Mall Suburban areas 220,000 2013

orchardgateway Orchard/Scotts Road

180,000 2013

Asia Square Tower 2 Other city areas 27,000 2013

Source: URA, DTZ Research

Name of development Area Est NLA(sq ft)

EstTOPYear

Redevelopment of Artium@Orchard

Orchard/Scotts Road

127,000 2012

Westgate Suburban areas 426,000 2013

JEM Suburban areas 331,000 2013

Bedok Mall Suburban areas 220,000 2013

Orchardgateway Orchard/Scotts Road

180,000 2013

Asia Square Tower 2 Other city areas 27,000 2013

Table 2

Upcoming major retail projects

Name of development Area Est NLA (sq ft)

Est TOP Year

Redevelopment of Atrium@Orchard

Orchard/Scotts Road

127,000 2012

Westgate Suburban areas 426,000 2013

JEM Suburban areas 331,000 2013

Bedok Mall Suburban areas 220,000 2013

orchardgateway Orchard/Scotts Road

180,000 2013

Asia Square Tower 2 Other city areas 27,000 2013

Source: URA, DTZ Research

Figure 7

Average prime retail gross rental index in Orchard/Scotts Road

85

90

95

100

105

110

115

Q4

03

Q4

04

Q4

05

Q4

06

Q4

07

Q4

08

Q4

09

Q4

10

Q4

11

Q4

12

Q4

13

(Q1 2011=100)

Source: DTZ Research

Demand resilient

Demand for office space remained resilient in

Q3, with the year-to-date (y-t-d) net absorption of

1.3 million sq ft exceeding the expected 1.1 million

sq ft of net new supply for the year. While demand

has softened primarily amongst banks and financial

services companies, the slack has been picked up

by other sectors namely the legal, social media,

pharmaceutical and energy sectors. For example,

CGCG dealing in oil and gas recently set up its office

in Singapore and LinkedIn is also expanding.

Rental performance uneven

Rental performance was uneven, with rents falling

in the CBD while holding firm in the CBD fringe areas.

This was due to different tenant profiles, varying

occupancy rates and new supply in each micro

market. While the CBD fringe areas have a more

diversified tenant profile, more than 50% of the

occupiers in Marina Bay and Raffles Place are in the

banking and financial services sector and feeling the

most heat from the on-going debt crisis in Europe.

CBD rents fall

Average gross face rents in Marina Bay fell the

most in Q3 by 4.4% q-o-q and 10% y-t-d to $10.75

per sq ft per month. Newly-completed buildings in

Raffles Place with similar specifications also saw

rents fall 4.3% q-o-q to an average of $11.00 per sq

ft per month. The rental level is however higher than

those at Marina Bay due to their higher occupancy

rate of 92.7%. The occupancy rate at Marina Bay is

the lowest among all areas at 83.0%. Even though

it might increase over the next one to two quarters

as occupiers progressively move into the newly

completed Marina Bay Financial Tower Centre (MBFC)

Tower 3, it will be lower again next year when Asia

Square Tower 2 is completed.

For the rest of Raffles Place, average gross face

rents fell by a smaller 1.3% q-o-q and 4.3% y-t-d to

$9.38 per sq ft per month (Figure 9). Elsewhere in

the CBD, average gross face rents for office space

in Shenton Way/Robinson Road/Cecil Street also

declined 4.0% q-o-q and 6.5% y-t-d to $7.25 per

sq ft per month. Occupancy fell by 5.3 percentage-

points q-o-q to 90.0%, largely due to DBS moving

out of DBS Building. However, the occupancy rate is

expected to increase going forward as a few office

buildings will be removed from the stock, such as The

Corporate Office which will be redeveloped and the

podium at DBS Building which will be converted to

retail use.

CBD fringe rents hold firm

At the CBD fringe, Marina Centre rents stood at

$9.15 per sq ft per month with only a 1.1% fall y-t-d

in Q3, as its buildings were close to full occupancy

at 99.4%. Meanwhile, average rent at Anson Road/

Tanjong Pagar stood at $7.50 per sq ft per month

and is now higher than that in nearby Shenton Way/

Robinson Road/Cecil Street as the area is gaining

popularity with its newer and larger office buildings,

closer proximity to the MRT station and increasing

vibrancy. Similarly, rents in other CBD fringe areas

such as Orchard Road, Beach Road/North Bridge

Road and Bras Basah/Selegie Road held firm in Q3.

Offices

Figure 9

Office rental indices

0

40

80

120

160

200

240

Q4

03

Q4

04

Q4

05

Q4

06

Q4

07

Q4

08

Q4

09

Q4

10

Q4

11

Q4

12

Q4

13

Raffles Place Shenton Way/Robinson Rd/Cecil St

(Q1 2011=100)

Source: DTZ Research

CBD rents to decline due to impending supply

Going forward, CBD rents will face more pressure

compared to CBD fringe rents, due to impending

supply. Besides major completions such as Asia

Square Tower 1, Ocean Financial Centre and OUE

Bayfront last year, the completions of MBFC Tower

3 and One Raffles Place Tower 2 this year and Asia

Square Tower 2 next year will add another 2.2 million

sq ft to the office stock (Figure 10). Adding to this

supply is an estimated 170,000 sq ft of shadow space

from occupiers in Marina Bay and Raffles Place,

which made up about 70% of the total shadow space

available in Q3. In contrast, there has been no new

supply at the CBD fringe since 2010 and only about 50,000 sq ft will be coming on-stream next year in

Orchard Road.

Figure 10

Office development pipeline including projects on awarded GLS sites, sq ft (million)

-2.0

-1.0

0.0

1.0

2.0

3.0

2012 2013 2014 2015 2016

CBD CBD FringeDecentralised TerminationCompleted in Q1-Q3 2012

Source: URA, DTZ Research

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© DTZ October 2012

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