PROPERTY INSIGHTS. Market Overview. Slowdown prelude to weaker Singapore Quarter 4, Average office gross rents in Raffles Place

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1 PROPERTY INSIGHTS Singapore Quarter 4, 211 Market Overview Slowdown prelude to weaker 212 Economic activity in Singapore slowed in Q4 211, bringing the full-year economic growth to an estimated 4.8%, in contrast to 21 s 14.5%. The Singapore economy is forecasted to grow at a sub-par rate of 1-3% in 212. In view of the slowdown in economic growth, real estate activity in 212 is expected to be more subdued. Resale prices of private homes across all segments slowed in Q For the whole of 211, private home prices continued to climb, but at a slower pace compared to 21. The residential market ended 211 the way it started with a set of cooling measures. Prices and sale volumes in 212 will be affected by the Additional Buyer s Stamp Duty (ABSD) measures announced in December 211, but the low-interest rate environment and the stronger balance sheets of developers will help to support the residential market in 212. Retail rents in Orchard/Scotts Road area were unchanged quarter-on-quarter (QOQ) in Q4 211 and registered a modest growth rate of 1.% year-onyear (YOY) in 211, while suburban retail rents were unchanged largely due to the substantial pipeline supply. Prime rents in Orchard/Scotts Road are Figure 1 Average office gross rents in Raffles Place $ per sq ft per month expected to stay largely flat in 212 as the slowdown in economic growth will have some impact on discretionary retail spending and tourist arrivals. The weaker economic environment saw office and industrial rents stagnate in H2 211, with rents remaining unchanged QOQ in Q For the whole of 211, office rents in Raffles Place rose 8.9% while average rents for first-storey conventional private industrial space grew by 4.9%. Both office and industrial rents are forecasted to fall in 212, in view of the slowing economy and cautious sentiment in the sectors (Figure 1)

2 Trends & Updates Economic Overview According to advance estimates by the Ministry of Trade and Industry (MTI), the economy grew by 3.6% YOY in Q4 211, down from the growth of 5.9% YOY in the previous quarter (Figure 2). The slowdown in Q4 211 was mainly due to a moderation of growth in the manufacturing sector, which grew by 6.5% after expanding 13.4% in Q For the whole of 211, the economy is estimated to have grown by 4.8%. Backed by strong employment growth, the resident unemployment rate declined slightly from 3.% in Q2 211 to 2.9% in Q3 211 (Figure 2). On a YOY seasonally adjusted basis, the consumer price index (CPI) rose by 5.7% in November 211, up from 5.4% in October 211 (Figure 3). The CPI in January-November 211 was 5.2% higher than the same period last year. According to the Monetary Authority of Singapore (MAS), core inflation, which excludes costs of accommodation and private transport, is expected to be lower at around 1.5-2% in 212, compared to near to 2% in 211. In the latest policy statement released by MAS in October 211, MAS reduced the slope of the S$ Nominal Effective Exchange Rate policy band, with no change to the width of the band and the level at which it is centred, in view of the expected moderation in core inflation in 212. The move to reduce the appreciation slope created upward pressure on the SGD SIBOR. The 3-month interbank rate rose from.25% in September to its peak of the year in November at.5%, but subsequently eased to.38% in December 211 (Figure 3). Figure 2 YOY GDP growth and resident unemployment rate % Q1 1 Q2 1 Q3 1 YOY GDP growth Source: MOM, MTI, DTZ Research * Advance estimates Figure 3 Q4 1 Q1 11 Q2 11 CPI and short term interest rate % Q1 1 Q2 1 Q3 1 Q3 11 Q4 11* Resident unemployment rate Q4 1 CPI change (%) (QOQ) Q1 11 Source: MTI, MAS, DTZ Research *CPI figures for Q4 11 are based on October and November Figure 4 Exchange rate S$ per unit of US$ Q2 11 Q month SIBOR Q4 11* The US dollar was maintained at $1.3 in December, similar to that in September as investors favour the US dollar as a safe haven (Figure 4) Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 In view of subdued global economic conditions, Source: MAS, DTZ Research MTI expects the Singapore economy to grow by 1-3% in 212. However, if the Eurozone sovereign debt crisis worsens, economic growth could be lower than what the government has forecasted.

3 Residential Primary home sales averaged 1,546 units per month in October and November 211, bringing total take-up in the first 11 months of 211 to 15,393. This is slightly higher than the 15,32 units sold during the same period in 21 (Figure 5). Projects launched in Q4 211 included Bedok Residences and The Palette, which both enjoyed high take-up rates (Table 1). Total take-up in the primary market in 211 is estimated to come in close to the 16,292 units sold in 21. Private home prices across all segments slowed in Q For the whole of 211, private home prices continued to climb, but the pace of increase was slower compared to 21. Aided by low interest rates and rising HDB resale prices, the average resale price of leasehold condominiums in the suburban areas rose 8.2% YOY (Figure 6). This is the fastest rate of growth across the nonlanded segments in 211. In Q4 211, resale prices of leasehold condominiums in the suburban areas grew by.8% QOQ. Purchase sentiment in the luxury segment was affected by global economic uncertainties which led to more selective buying. Resale prices of luxury condominiums in the prime districts of 9, 1 and 11 saw a modest growth of only 1.% in 211. Prices stalled in Q3 211 and fell by.7% QOQ in Q The government imposed an Additional Buyer s Stamp Duty (ABSD) over and above the current Buyer s Stamp Duty on certain categories of residential property purchases to promote a more stable and sustainable property market. With effect from 8 December 211, foreigners have to pay an ABSD of 1% for any residential property while Permanent Residents and Singaporeans have to pay an ABSD of 3% for their second and third, respectively, and subsequent residential properties. Figure 5 Primary and secondary home sales (excluding ECs) No. of private homes 6, 4, 2, Jan 1 Mar 1 May 1 Table 1 Jul 1 Sep 1 Primary sales Units launched Nov 1 Jan 11 Selected new launches in Q4 211 Name of development Tenure Mar 11 Estimated no. of units launched May 11 Jul 11 Sep 11 Nov 11 Secondary sales Price range ($ per sq ft) Bedok Residences 99 yrs 583 1,6-1,546 The Palette 99 yrs ,175 Parc Vera 99 yrs Regent Residences FH 18 1,16-1,564 Este Villa (landed) FH Figure 6 Average non-landed resale capital values $ per sq ft Luxury Non-prime leasehold 211

4 As a larger proportion of purchases in the luxury segment are by foreigners who are now subject to the ABSD of 1%, this segment is expected to see a greater fall in prices than other segments in 212. Prices and sale volumes in 212 will be affected by the ABSD measures, but the low-interest rate environment and the stronger balance sheets of developers will help to support the residential market in 212. Historically, significant price falls have been triggered by external events that affect the economy rather than cooling measures. The projected sub-par economic growth in 212 will thus have a more significant impact on buyer sentiment and consequently on demand and prices. Retail The average gross fixed rent of prime firststorey retail space in the Orchard/Scotts Road area stood unchanged at $4.2 per sq ft per month in Q4 211 after rising.5% QOQ in Q The average gross fixed rent of prime first-storey retail space in the area rose 1.% YOY, recording the best performance compared to other areas in Singapore. There was uneven performance in shopping centres along the prime retail belt as faddish consumers lost interest in older malls and gravitated towards newer shopping centres with more interesting retail concepts. The average gross fixed rent of prime firststorey retail space in other city areas was also unchanged QOQ at $24.5 per sq ft per month in Q For the whole of 211, the average gross fixed rent of prime first-storey retail space in other city areas grew.6% YOY. In a bid to remain ahead of the competition at nearby Orchard/Scotts Road, Suntec City Mall, Iluma, CHIJMES and PoMo have announced asset enhancement initiatives to increase their appeal to shoppers. The average gross fixed rent of prime first-storey retail space in the suburban areas was similarly unchanged QOQ at $33.7 per sq ft per month in Q There was also no growth in average gross fixed rent of prime first-storey retail space in the suburban areas in 211. Rents in the suburban areas continued to stay flat due to the substantial pipeline supply. From 212 to 216, the total potential supply Figure 7 Retail development pipeline including projects on awarded GLS sites 2, 1,5 1, 5 sq ft (s) of private retail space including projects on awarded government land sale sites without planning approval as well as projects in Marina South and Ophir-Rochor is estimated to be around 4.9 million sq ft of net lettable area (NLA) (Figure 7 and Table 2). More than half of this potential supply will be in the suburban areas Orchard/Scotts Rd Other city areas Suburban areas Table 2 Major upcoming retail projects Name of development Est NLA (sq ft) Est TOP Year Marina Bay Link Mall II 82, 212 JCube 24, 212 Redevelopment of former Hotel Phoenix/Specialists Shopping Centre and Orchard Emerald 144, 213 Sports Hub 25, 214

5 Even though there is limited new supply coming online in the Orchard/Scotts Road area in 212, the slowdown in economic growth will have some impact on discretionary retail spending and tourist arrivals. However, leasing demand from international retailers remains strong as they look to expand in Asia due to weak consumer demand in the west. Prime rents in the area are likely to stay largely flat in 212 with downward pressure (Figure 8). Offices Figure 8 Average prime first-storey retail gross rents in Orchard/Scotts Road $ per sq ft per month The average occupancy rate for office space in Raffles Place fell 3.7 percentage-points QOQ and 7.6 percentage-points YOY to 89.1% in Q Occupancy rate in Raffles Place slid in 211 due to substantial new supply and an outflow of demand to newly completed projects. Nevertheless, the average prime office rent in Raffles Place held firm at $9.8 per sq ft per month in Q For the whole of 211, the average prime rent in the area rose 8.9% compared to the 13.9% increase in 21. The increase took place in H1 211 as rents remained stagnant in the second half of 211 due to occupier concerns over the worsening eurozone debt crisis. The average rent in Marina Centre grew 15.6% YOY although it recorded a fall of 1.6% QOQ to $9.25 per sq ft per month in Q Rents fell in Q4 211 despite the smaller decline in occupancy rate than Raffles Place as there were more strata-titled offices held by individual investors. The average occupancy rate in Marina Centre fell.9 percentage-point QOQ and 2.4 percentage-points YOY to 96.3% in Q Take-up of office space eased in 211 following a host of major pre-commitment deals by multinationals in 21. Occupiers have adopted a wait-and-see stance in view of the uncertain economic environment and have placed their future expansion plans on hold. As a result of the low demand, most landlords have become more flexible in packaging competitive lease terms to meet the occupiers requirements. Figure 9 Office development pipeline including projects on awarded GLS sites 3, 2,5 2, 1,5 1, 5 Table 3 sq ft (s) CBD CBD Fringe Orchard Road Decentalised Major upcoming office projects Name of development Marina Bay Financial Centre Tower 3 Est NLA (sq ft) Est TOP year 1,258,5 212 The Metropolis 1,, 213 Asia Square Tower 2 788,6 213 Redevelopment of Market Street Carpark 72, 213 Jurong Gateway Road 315,4 213

6 About 1.6 million sq ft of office space is expected to be completed in 212 compared to 3.1 million sq ft in 211 (Figure 9 and Table 3). While the lower increase in supply in 212 will provide some breather to landlords, shadow space which represents excess office space that companies have leased but are looking to sublet or assign, is noted to be on the rise. Approximately 187, sq ft of shadow space is currently available, almost double the estimated 12, sq ft of shadow space in Q The majority of the shadow space (46%) is in the Marina Bay area as some companies returned excess space that was precommitted earlier. Figure 1 Average office gross rents in Raffles Place $ per sq ft per month In light of the slower economic growth next year, office demand is expected to be weaker in 212 with resultant fall in rents (Figure 1).

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