ASIA PACIFIC WATCH JULY 2019

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As a fairly small and open economy, Singapore’s economic prospects have for many years been very much shaped by external forces and particularly its strategic location at the center of a rapidly-growing region. Over the past three decades, the economy has benefitted from the rapid growth of global trade relative to global GDP, and other globalization forces such as the cross-border flows of capital, ideas and people. Singapore has restructured its economy from basic manufacturing to higher value-added segments including pharmaceuticals, high tech and services. Its expansion as a host of growing numbers of international tourists and the integration of the Chinese economy into the world’s trading system have been additional boosts to growth in the 21st century. This has ensured that Singapore has enjoyed a healthy GDP growth rate since 1980, and its economy rebounded rapidly from the GFC of 2009, expanding by 15.2% in 2010, making it the second fastest growing country in the world that year. Domestic policy has played an important role in “reinventing” itself through the years since independence in 1965. Its massive provision of public housing, world class education and health systems all adding to its development and helping it to become one of the world’s wealthiest nations. Yet it remains vulnerable to external shocks such as the Global Trade War. We hope that its solid fiscal and balance of payments positions may provide buffers against capital flow volatility.

STRUCTURAL GROWTH SLOWDOWN IN SINGAPORESingapore’s GDP growth is forecast to continue its structural deceleration over the coming five years and to expand an average of 2.5% p.a. for the coming five years: well down from the 4.6% p.a. for the past ten-year period. The Consensus Economics mean forecast is for 2.1% growth this year and 2.3% in 2020 (June 2019 survey). Its unemployment rate of just 3.8% is expected to decrease gradually by 2023 to 3.2%. Base case is for CPI to average 1.6% for the five-year outlook, which is higher than in recent years but slightly lower than the ten-year historic average of 1.7%. Long term government bond yields are forecast to rise over the coming five years from 2.0% at the end of 2018 to 3.4% by 2023.

Sources: Oxford Economics, CBRE Global Investors

GDP AND CPI HISTORICAL AND FORECAST TRENDS

Data points through end of June 2019.Change represents month-over-month change.

PRINCIPAL CONTRIBUTORS:Shane Taylor

Juliet Cha

19:003-7

21,275.92Nikkei 225

28,542.62Hang Seng

2,978.88Shanghai

Composite

108.47Yen/Dollar

3.3%

6.1%

0.1%

2.8%

This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy & Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

Copyright © 2019, CBRE Global Investors, LLC. All rights reserved.

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PRIME WAREHOUSE RENTS AND YIELDS

Source: CBRE ERIX

Source: CBRE ERIX

SINGAPORE TRANSACTION VOLUMES BY PROPERTY TYPE

PRIME OFFICE RENTS AND VACANCY RATES

INVESTMENT TRANSACTION VOLUMES SOLIDReal estate investment volumes peaked in 2013 at USD 9.3 billion and have been in a range of USD $6-8 Billion annually over the last five years according to Real Capital Analytics. Historically, real estate investment volumes in Singapore have been largely driven by office transactions. However, cooling measures in the office sector spurred investors to look for opportunities in various other sectors. 2018 was the biggest year on record for the industrial transaction volume. A handful of investments including ESR-REIT’s merger with Vita Industrial Trust boosted the industrial sector to the highest level at USD 1.92 billion since the peak in 2013. Investment activity for the year 2019 is off to a strong start with an increase in transaction volumes in the office, retail and industrial markets.

SHOPPING CENTRE PRIME RENTS AND VACANCY RATES

OFFICE SECTOR TRENDS IMPROVINGSingapore’s office vacancy rate is currently just above 5% and falling. Net absorption totaled 1.58 million sq ft in 2018: slightly more than net supply of 1.51 million sq ft. Expansions by co-working operators and tech firms continued to boost office demand. CBRE forecasts around 5.39 million sq ft will be delivered between 2019 and 2022. This annual average of 1.33 mill sq ft is approximately 30% lower than the ten-year historical average supply of 1.9 million sq ft. Office vacancy should thus continue to fall. Rents are projected to maintain an upward trajectory albeit at a more measured pace compared to the early part of the rental recovery cycle since 2017. Over the next five years (2019-2023), we forecast Raffles Place office rent growth to average 4.6% per year.

MANUFACTURERS, E-COMMERCE DRIVING INDUSTRIAL The logistics market appears to have reached a stabilization phase where most of the supply pressure has been alleviated. With the rise in e-commerce and expectations of faster delivery times, there is a strong focus on shortening last mile delivery times. Furthermore, there is an increasing need to consolidate retail and warehouse space to keep costs competitive for retailers and consumers. The bulk of leasing activity in the industrial sector in 2018 was driven by the semi-conductor firms, electronics sectors and 3PL logistics providers. There is also continuous leasing demand from high value-adding manufacturers. Rents have been stabilizing in that segment since Q4 2017 at around SGD 1.58/sqft/month (CBRE). Singapore’s industrial property delivered a 5.3% total return (unlevered) in 2018 according to MSCI.

RETAIL SECTOR REMAINS CHALLENGINGRetail sales growth was positive in 2018, thanks to improving consumer confidence, strong tourist arrivals and a healthy labour market. Rental declines of recent years have eased and the market is stabilizing after a prolonged period of rental correction. As consumers’ preferences become more sophisticated, it is critical for both landlords and retailers to work together and adapt to meet this demand. Prime rents remained stable at SGD 65/sqft/month in Q1 2019 (CBRE) and the supply pipeline is expected to tighten in coming years. Rental growth will likely be driven by prime malls with secondary locations to struggle. In the mid to long term, a strong rental rebound is unlikely as uncertainty remains for retailers given labor shortages and a competitive e-commerce scene.

Note: Transactions include properties and portfolios of USD 10 million and greater. Development sites are excluded.Source: Real Capital Analytics

Source: CBRE ERIX

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