Overview
Industry driven by growth in commercial sector and retail
The commercial real estate sector in Singapore is supported by the country’s progress as a leading business, shopping and entertainment center in Asia. Commercial properties in the country could be mainly classified into office, retail and industrial spaces.
SingStat data shows that as of December 2021, the industrial segment accounted for around 78% of the available commercial real estate space, the office segment amounted to around 12% and the balance 10% was dedicated for retail. Based on SingStat data, between 2016 and 2021, the available office and retail real estate space in Singapore grew at a CAGR of 1%, and industrial space grew at a CAGR of 2%.
The industrial segment mainly includes business parks, factories and warehouse spaces. The industrial property segment in Singapore is largely supported by growth in the manufacturing sector, and the increase in warehousing and logistics requirements.
Demand for the office real estate segment is mainly driven by strong tech and financial sector growth in Singapore. The country’s status as a key tech and financial hub in Asia attracts international companies into Singapore to establish their offices and expand their operations. Within the Central Business District (CBD) of the country, most of the office spaces are leasehold properties, while freehold office developments are very rare.
The retail real estate segment is highly dependent on the retail sector growth of Singapore, which is primarily supported by international visitors to the country. SingStat data shows that prior to the pandemic, in 2019, around 20% of the tourist receipts to Singapore was derived from shopping activities.
One of the most liquid and volatile commercial real estate markets in the world
Singapore is one of the top 25 liquid commercial real estate markets in the world, as per research from Real Capital Analytics (RCA). There is a strong appetite for Singapore’s commercial properties among global institutional real estate investors. According to a survey conducted by Coldwell Banker Richard Ellis (CBRE) in 2022, Singapore is the third most preferred market for cross-border real estate investments in the Asia Pacific region.
On the other hand, domestic real estate investors in Singapore are also keen on investing outside the country. These market dynamics make the commercial real estate industry in Singapore highly liquid and volatile. As per RCA Capital Liquidity Scores, during the pandemic, Singapore witnessed the sharpest drop in commercial real estate market liquidity and at the same time, showed the strongest recovery during 2021, as the negative effects of the pandemic started to subside.
Key Trends
Strong recovery in office real estate as corporates return to office spaces
The office property market remained healthy during 2021, mainly driven by strong demand from the technology and finance sectors. As per Cushman & Wakefield’s research, the technology and finance sectors accounted for around 72% of the new leases within the CBD in 2021. The demand was more focused on good quality office spaces. As per research from CBRE, rents for grade A office spaces within the core CBD were up 4% YoY and islandwide grade B space rents were down 2% YoY during 2021.
The office market showed strong improvement during Q4 2021 as businesses geared up to return back to offices during 2022 and resume expansion plans. Though work from home is no longer a default option in Singapore from January 2022, the 50% capacity limit on employees allowed at work spaces still prevails in the country.
Industrial growth driven by prime logistics and high-tech properties; slow recovery for retail
Research from CBRE points out that all industrial real estate sub-segments except business parks outside the city fringe witnessed growth in rents during 2021. As per Cushman & Wakefield’s research, within the industrial segment, rents for prime logistics and high-tech properties grew 2% YoY during 2021. The increase was mainly driven by the digital transformation and e-commerce plans of corporates, which require logistics and warehouse spaces, and growth in biomedical and electronics sectors.
The retail real estate market performed better in 2021, compared to 2020. However, the segment is still exposed to tough challenges as retail businesses remain affected by pandemic safety measures and lower international tourist arrivals. Islandwide prime retail rents fell 2% YoY in 2021, better than the 9% decline recorded in 2020, as per statistics from CBRE. Within the country, the suburban region fared well and posted 2% YoY growth in prime retail rents in 2021, as per CBRE.
Strong momentum in investments; higher focus on quality and sustainability
Commercial real estate investments in Singapore picked up momentum in 2021. Total investments during 2021 were up 200% YoY to USD 10 billion, from USD 3 billion in 2020, as per data from RCA. The research data further shows that around USD 5 billion of these investments in 2021 were sourced from overseas.
The total investments observed during 2021 in the commercial real estate industry was the second highest on record after 2019. As per RCA, nearly two-thirds of the investments in 2021 were channeled into office and retail segments. According to the property price index published by the Urban Redevelopment Authority (URA), based on the data for the central region of Singapore, office space prices fell 6% YoY and retail space prices declined by 4% YoY during 2021.
The commercial real estate supply during 2020 and 2021 remained tight across all segments due to redevelopment plans for properties and pandemic-driven construction delays. As per SingStat data, office space growth remained flat and industrial space grew 1% YoY during 2020 and 2021. Retail space fell 1% YoY in 2020 and recovered by 1% YoY in 2021.
The industry’s focus is shifting towards higher quality, healthy and sustainable green commercial real estate spaces as more investors and tenants are becoming keen about these Environmental, Social and Governance (ESG) features than ever before in the past. This trend is evident across all commercial real estate asset segments.
Key Statistics
- As per data from SingStat, as of December 2021, Singapore had around 8.2 million sqm of office space, 6.2 million sqm of retail space and 51 million sqm of industrial space.
- According to URA data, the office space vacancy rate was at 12.8% in Q4 2021, versus 11.8% in Q4 2020 and 10.5% in Q4 2019. The retail space vacancy rate was at 8.1% in Q4 2021, compared to 8.8% in Q4 2020 and 7.5% in Q4 2019.
- As per data from SingStat, supply in the pipeline for office space was at 916,000 sqm, retail space was at 460,000 sqm and industrial space was at 4.7 million sqm, as of December 2021.
- Indexes published by the URA show that office space prices and office space rentals seen in Q4 2021 in the central region of Singapore were down 16% and 7% respectively, compared to the numbers prior to the pandemic in Q4 2019. Retail space prices and retail space rentals observed in Q4 2021 in the central region were down 9% and 20% respectively, from the levels observed in Q4 2019.