Escalating US-China dispute will weigh on Singapore retail, industrial property markets: Colliers

With deteriorating manufacturing and trade statistics, industrial rents and occupancy could come under fresh pressure. ST PHOTO: KELVIN CHNG

SINGAPORE - Threats from frayed US-China trade relations and a gloomy economic outlook could stifle any recovery for Singapore's retail and industrial property markets in the near term, according to two research reports released by Colliers International on Wednesday (Aug 14).

Both reports examined the performance and outlook for Singapore's two property segments during the first half this year.

Tricia Song, Colliers' head of research for Singapore, said: "With the dimmer economic outlook ahead, we expect the retail and industrial property markets to face some pressure. A prolonged economic downturn, should it happen, will likely crimp consumer confidence, resulting in cutbacks on discretionary spending among households.

"Meanwhile, industrialists may be more cautious about their space needs and could shelve expansion plans. That said, there are pockets of opportunities for investors in both markets that will likely provide a decent yield."

Retail rents remained weak for the first six months this year, with the Urban Redevelopment Authority's retail rental index in the central region declining 1.7 per cent from end-2018. In addition, data tracked by Colliers Research showed that ground-floor rents at Orchard Road fell 1.5 per cent half on half (h-o-h) in the first half of the year to $40.60 per square foot per month (psf pm), while that of regional centres remained flat at $33.60 psf pm.

Colliers Research noted that rental declines have slowed since early 2018, and that the large retail space completions since 2013 should taper off from 2020 onwards, helping to support occupancy. It estimates that average annual new supply from H2 2019 to 2023 should hover around 380,000 sq ft, versus 1.04 million sq ft over the last 10 years. One of the malls slated to open later this year is PLQ Mall - the 340,000 sq ft retail component of Paya Lebar Quarters.

Island-wide retail vacancies also declined by 0.8 percentage point h-o-h to 7.7 per cent in H1 2019, likely boosted by the good take-up at Jewel Changi Airport and Funan mall, and Colliers Research expects the vacancy rate to continue to trend downwards over 2020 to 2023, as supply eases.

"We advise landlords to optimise tenant mix and retailers to adapt to changing consumer trends such as experiential retail. Investors should focus on malls with high population catchment and asset enhancement potential," explained Ms Song and associate director of research at Colliers International, Shirley Wong.

Meanwhile, retail transaction volumes jumped 137 per cent h-o-h to reach $2.13 billion in the first half this year, driven by higher investors' interest. This is markedly higher than the $1.42 billion transacted in the whole of 2018, Colliers International said.

Added Ms Song: "Headwinds prevail for the retail sector as the soft economy could impact the still-fragile consumer sentiment, and dent any hopes of recovery in retail rents. On a more positive note, the surge in investment sales of retail malls during H1 2019 reflected rising optimism among investors.

"We observed that the buyers of these malls are spread across strategic and financial buyers with developers and Reits (real estate investment trusts) seeking yields or future redevelopment potentials, while institutional funds look for yields and value-add opportunities."

Separately, the industrial real estate sector in Singapore seemed to have found its footing, with overall rents bottoming out, Colliers International said.

However, with deteriorating manufacturing and trade statistics, industrial rents and occupancy could come under fresh pressure. Leasing demand is expected to lag behind supply in 2019 to 2021 due to the weaker trade conditions, and Colliers Research estimates the annual net absorption from 2018 to 2023 to come in at 8.6 million sq ft, 25 per cent below the 10-year historical average.

Dominic Peters, senior director of industrial services at Colliers International, said: "Industrialists have already become more cautious on their space requirements, renewals and expansion plans, preferring a wait-and-see approach given the gloomier economic outlook.

"They would also be watching the US-China trade spat closely and assessing its potential impact on their business. For landlords, we would recommend that they take this opportunity to consider upgrades and asset enhancements - especially for ageing properties - to be ready for Industry 4.0."

Colliers Research expects the rental gap between business park/high-spec space and the general factory/warehouse space to widen towards the end of 2019.

This comes as new business park properties and high-spec spaces should continue to enjoy favourable rental growth due to their premium quality and limited stock, while older factory spaces may see flat to declining rents, the research house noted. It added that tech firms continued to gravitate towards newer business park and high-tech spaces for good amenities and cost savings.

According to one of the reports, business park monthly rents rose 0.5 per cent h-o-h, and 2.1 per cent year-on-year (y-o-y) to $4.33 psf in H1 2019, amid very tight supply. Monthly rents for high-spec industrial buildings located outside of science parks and business parks also increased 1 per cent h-o-h and y-o-y to $2.93 psf.

By contrast, the average gross monthly rents of warehouse-logistics properties slipped 0.8 per cent h-o-h and y-o-y to $1.24 psf.

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