SG Property Outlook: Potential Growth in Commercial & Industrial Sectors, Residential May Face Headwinds

Singapore's property market, a key economic driver, continuously attracts domestic and global investors. The stock market's REITs segment is considered a gauge of real estate health, and it underperformed in 2024 after outshining the general market in 2023. However, OCBC analysts view the recent dip as an opportunity to invest in premium entities. What does the outlook for Singapore real estate look like for 2024, and are S-REITs a worthwhile investment?

Since reaching a likely zenith of approximately 5.3% in July 2023, the Federal Funds Rate is expected to trend downward in mid-2024. Correlatively, Singapore's domestic interest rates, significantly swayed by U.S. rates, may experience a parallel descent.

Global inflation is forecasted to ease with better supply conditions. A strong Singapore dollar will help mitigate the effects of imported inflation. Meanwhile, Singapore's labor cost growth is expected to slow as the job market cools.

The Monetary Authority of Singapore (MAS) on March 13 indicates an upward revision in the economic growth forecast for Singapore in 2024, with a more moderate outlook for inflation.

According to consensus, the economy is expected to expand by 2.4% this year, with an overall inflation rate projected at 3.1%. This marks a modest increase from the December projection, which estimated GDP growth at 2.3% and an inflation rate of 3.4%.

In recent years, Singaporean authorities have intensified restrictive measures to curb demand and ensure housing affordability. In April of the previous year, the Additional Buyer's Stamp Duty (ABSD) for foreign purchasers was doubled to 60%, significantly dampening their interest. It is anticipated that foreigner demand will continue to be subdued in 2024, weighed down by the substantial ABSD.

While officials have also increased supply by releasing the most private residential land in a decade, total sales for the full year of 2023 saw a year-on-year decline of 15%. This marks the lowest figure since 2016.

Over the past two years, the inventory of unsold new private homes in Singapore has increased by 20%, and with more projects coming to market, this is expected to continue to grow in 2024. According to the latest quarterly data from the Urban Redevelopment Authority, the stock of unsold units (including both completed and uncompleted projects) grew by 20.4%, from 14,333 units in the fourth quarter of 2021 to 17,262 units in the fourth quarter of 2023.

In Q4 2023, private residential prices saw a 0.8% increase from the preceding quarter, amounting to an overall annual rise of 2.7%. Last year's full-year price growth of 6.7%, while still significant, marked a slowdown from the 8.6% uptick observed in 2022.

Tourism continues to thrive, driven by a strong events calendar and increased flights, notably due to China's visa exemption policy, resulting in a surge of visitors. These events not only boost tourism and retail revenues but also enhance Singapore's international reputation as a hub for tourists and businesses alike. The Singapore Tourism Board expects tourism to rebound to pre-COVID levels this year. "Now is an optimal time for investors to focus on the retail sector, with asset prices at a low," says Benjamin Bayon, Regional Head of Retail Solutions at JLL.

Retail space completion in 2024 is projected at 0.66 million sq. ft., down 15.1% from 2023. Future annual supply over three years is well below the 10-year average, potentially supporting higher rents.

The office market in Singapore has shown robustness, supported by a mix of demand from sectors including consumer businesses, private wealth management, and flexible workspaces. Market confidence is expected to rebound in the latter half of 2024, with the easing of interest rates and inflation, a bolstering economy, and companies feeling more confident to pursue growth strategies.

As certain third-party logistics consolidate, leasing demand in 2024 is anticipated to become more varied. Occupiers in life sciences and technology continue to search for premium spaces actively, and a resurgence in manufacturing is likely to lead to increased leasing engagement from electronics, general manufacturing, and engineering companies.

Amid geopolitical tensions, manufacturers and 3PLs have prioritized resilient supply chains, leading to sustained demand for logistics facilities. Prime logistics rents soared by 14.2% to hit a record high, driven by strong demand and limited supply.