Singapore commercial property market sees ‘clear signs of recovery’: JLL

In its report, the JLL team sees five key factors as helping to drive the short-term national recovery for the commercial real estate market.

Singapore’s commercial property market is seeing “clear signs of recovery”, says JLL Research.

This is due to the country’s success in making Covid-19 endemic, the sustained reopening of its domestic economy and borders, and the expansion of its economy.

“In the near term, stronger real wage growth and excess consumer savings during the Covid-19 pandemic in 2020 and 2021 could cushion the impact of rising inflation and interest rates. on consumption,” he wrote.

In its report, the JLL team sees five key factors as helping to drive the short-term national recovery for the commercial real estate market.

These are: pent-up demand due to 2020-2021 lockdowns, fastest wage growth in Singapore, recovery of the country’s tourism industry, brick-and-mortar retail experiences that complement the e-commerce experience, and sound fundamentals of supply and demand.

“We expect domestic consumption growth to accelerate as Singapore transitions to endemicity with the large-scale relaxation of Covid-19 measures that encourage community and social cohesion, such as restaurants, shopping and leisure activities,” the team writes.

“The lifting of key nationwide restrictions increases foot traffic in retail stores and malls and restores the operational capacity of businesses – especially food and beverage (F&B) operations – in turn, which boosts performance retail sales,” he added.

In the short term, the lifting of the remaining Covid-19 restrictions will further improve retail sales performance, albeit marginally since most national measures have already been lifted.

In addition, commercial real estate will benefit from the influx of non-residents.

“Singapore is making continuous efforts to attract foreign investment and talent – including the extensive reopening of its borders to all vaccinated travellers, its quarantine- and test-free travel protocols, and its business-friendly environment,” notes the report. crew.

Wage growth in Singapore, which is expected to increase by a compound annual growth rate (CAGR) of 5.9% over the five-year period from 2021 to 2026, compared to a CAGR of 2.8% from 2016 to 2021 according to Oxford Economics, will exceed annual inflation of 2.4% in Singapore from 2022 to 2026.

“In addition, the government’s Goods and Services Tax (GST) offset programs and the $1.5 billion inflation support program are expected to mitigate the impact of the GST hike and rising inflation on the consumption of most of the population,” writes the JLL team.

The recovery of Singapore’s tourism industry in the coming years will be another key driver of retail market growth.

“Singapore is poised to enjoy compelling and solid medium-term growth potential from its tourism market, given the country’s buoyant tourism sector prior to the pandemic,” the JLL team says.

The International Air Transport Association (IATA) said it expects a rebound in international tourism in 2022, driven by pent-up demand, with international air travel in the Asia-Pacific region expected to fully recover to levels. before the pandemic by 2025.

“China’s relaxation of its zero-Covid strategy and its removal of international travel restrictions that facilitate overseas travel will be fundamental for Singapore travel demand to return to pre-Covid levels in Singapore, as China is the largest tourism market in the region and Singapore’s number one source market for tourism in 2019,” the team explains.

Plus, physical stores look like they’re here to stay.

Despite changes in consumer habits during Covid-19, physical stores serve as a complement to online platforms.

“While online retail platforms offer consumers convenience and competitive prices, physical stores offer shoppers experiences that engage their senses and the opportunity to test products before making a purchase,” explains the JLL team.

“Physical stores, especially experiential or technology-driven flagship concepts, are also integral to business activities, such as brand building and product presentation, and serve as destinations for consumers to congregate, socialize and network,” he adds.

Finally, Singapore’s commitment to reopening the economy alongside its “pandemic preparedness” will continue to boost retailer confidence.

“Consumption growth, supported by rising wages and a recovery in tourism, should encourage business expansion and support healthy occupier demand over the medium term,” the JLL team says.

“The supply pipeline for quality retail space will remain tight over the next five years, at less than 1.0% of existing inventory per year. Coupled with rising occupancy rates in many well-located shopping centres, prime surface rents in retail assets are expected to grow by an above-trend average of 2.5-3.5% per year over the next five years,” he adds.

In addition, the team observes that higher return expectations in a higher interest rate environment may cause retail asset prices to rise modestly in the near term, with quality retail asset prices expected to rise. appreciate more significantly in the medium term in view of rising rents, given the scarcity of tradable assets and Singapore’s safe haven status.

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Penny D. Jackson