SINGAPORE REAL ESTATE HIGHLIGHTS

RESEARCH

SINGAPORE REAL ESTATE HIGHLIGHTS MARCH 2016

ECONOMIC OVERVIEW 1 | RESIDENTIAL 5 | RETAIL 8 | OFFICE 11 | INDUSTRIAL 13 | INVESTMENT & CAPITAL MARKETS 16 | AUCTION 20

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ECONOMIC OVERVIEW Global Economy

the member states 1, with the exception of Greece, Austria, and Finland, saw positive quarterly growth ranging from 0.1% to 1.2%. Estonia saw the highest growth of 1.2% q-o-q in Q4 2015 upon recovery from its negative growth of 0.4% q-o-q in the previous quarter, while Greece and Finland continued to suffer declines of 0.6% q-o-q and 0.1% q-o-q respectively during the same period, albeit at a lower extent of contraction compared to the preceding quarter. The positive economic growth for the Euro Area was primarily due to the increased consumer spending on the back of easing monetary policy and gradual decline in overall unemployment rate. In January 2016, the seasonallyadjusted unemployment rate in Euro Area (19 countries) fell by 1.0 ppt to register at 10.3% from the same period last year.

Economic growth for the United States (US) at a decelerating rate Real Gross Domestic Product (GDP) for the US grew 1.0% quarter-on-quarter (q-o-q) on a seasonally adjusted annual rate (saar) basis in the fourth quarter of 2015, lower than the growth of 2.0% in the preceding quarter. The decelerated growth was primarily attributed to the slower sale of durable goods such as cars and appliances, weakened trade performance amid the stronger greenback, lower state and local government spending, as well as the decline in non-residential fixed investment on the back of global market uncertainty. Consumer spending remained resilient, which accentuated the point that domestic-oriented industries generally performed better than those dependent on overseas demand. The spending power of consumers were propelled by the improved labour market where the average unemployment rate reached its seven-year low and registered at 5.0% in December 2015, a drop of 0.6 percentage point (ppt) year-on-year (y-o-y) from the preceding year in December 2014.

Chinese economy continues to show signs of slowdown The Chinese economy saw its lowest growth rate in 25 years, expanding by 6.8% y-o-y in Q4 2015 from the same period last year. For the whole of 2015, it grew by an annual rate of 6.9%. Industrial production in China grew by 5.9% y-o-y in December 2015, down from 6.2% y-o-y in the preceding month. The contraction in manufacturing purchasing managers’ index from 49.7 in December 2015 to 49.4 in January 2016 further points to weaker production performance and a dampened manufacturing outlook in China, amid its shift from an exportdependent manufacturer of lower-margin goods to a consumption-driven economy. Investment in fixed assets expanded

Euro Area GDP grew by 0.3% q-o-q in Q4 2015, ending the year by maintaining growth momentum GDP in the Euro Area (19 countries) expanded by 0.3% q-o-q in Q4 2015, ending the year with sustained growth momentum from the previous year. All

EXHIBIT 1

GDP Growth Rates of Major Economies Country / zone Euro Area (q-o-q) USA (annualised rate) China (q-o-q)

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

0.4% 2.1% 7.3%

0.5% 0.6% 7.0%

0.4% 3.9% 7.0%

0.3% 2.0% 6.9%

0.3% 1.0% 6.8%

Source: Eurostat, US Bureau of Economic Analysis, National Bureau of Statistics of China, Knight Frank Research 1 Data for Czech Republic, Denmark, Ireland, Croatia, Luxembourg, Malta, Slovenia and Sweden was not available at the time of writing on 3rd March 2016.

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REAL ESTATE HIGHLIGHTS MARCH 2016

by 10.0% y-o-y in December 2015, a lower margin of growth compared to the same period last year, attributing to the slowdown in the secondary and tertiary industries. While the manufacturing and construction industries softened, consumption continued to see resilience amid solid wage growth, with consumer price index and urban household consumer price index increasing by the same growth margin of 0.1% y-o-y in December 2015.

Global economic outlook Based on International Monetary Fund (IMF)’s World Economic Outlook (WEO) January 2016 report, the projected global growth annual rate for 2016 is revised downwards from 3.7% to 3.4%. Notwithstanding the gradual recovery in the US and euro area economies, the challenging business environment could curtail the outlook of the advanced economies. The US economy is projected to see an annual expansion of 2.6%, on the back of increasing domestic demand from improving housing and labour markets. However, with a stronger greenback and lower oil prices, it is likely to exert pressure on the manufacturing and investment activities in mining structures and equipment. This is on top of the global uncertainty that may elevate the downside risks on the US economy. The federal interest rate may also be adjusted higher with the improving labour market, which potentially leads to rising inflation rate as a result of increased consumerism. Despite the weaker net exports, the stronger private consumption patterns supported by the easing monetary policy and lower oil prices is expected to generate growth for the euro area with a projection of 1.7% annual increase for 2016, up from 1.5% in 2015. Although the euro area managed to maintain a growth momentum in 2015, instability of global business conditions may still threaten its economic performance in 2016. Growth for emerging and developing economies is projected to be uneven and challenging in the face of stronger economic headwinds - softening global trade, weaker investment climate and geopolitical tensions. This led to a

projected annual growth rate of 4.3% in 2016, a 0.2 ppt downward adjustment from October 2015 WEO projection. While economies such as China, Latin America and Russia may see muted growth prospects, other emerging regions like India, Middle East and Saharan Africa is projected to experience robust economic progress in 2016, albeit at a modest pace. China is slated to continue its slowing growth trajectory as it undergoes significant economic rebalancing and structural reforms. IMF projected China’s GDP growth to ease to a lower annual growth margin of 6.3% in 2016, down from 6.9% in 2015. During the annual National People’s Congress in Beijing, a target annual growth between 6.5% and 7.0% for China was announced instead of a specific goal, accentuating the unpredictability of its economic progression, and a possible extension of dampened investment sentiment into 2016. Furthermore, on the back of China’s economic transition, Asia’s commodity exporters may see instability as they face greater challenges in adjusting to China’s changing import needs. However, although China’s outlook may be plagued with uncertainties in the near term, the economic transformation could be a step towards establishing the foundations necessary for China to prosper in the long term. With China’s large domestic market and fast-growing quality labour force, it provides the basics necessary to propel growth to a new phase, and such could result in positive spill-over to the other surrounding regions in terms of economic development and wealth creations. Notwithstanding anticipation of positive growth for most countries, Latin America is expected to face headwinds due to persistent economic turmoil in other countries such as Brazil. Russia is expected to experience protracted recession into 2016 in view of lower oil prices, which led to a drop in fiscal budget along with a massive decline in investment as a result of unfavourable financial conditions. However, India is slated to be a bright spot, supported by its growth in industrial production, fiscal expenditure and retail sales. With the likelihood for sub-Saharan Africa to lower their commodity prices further in 2016 to reach decade-low record, it is likely to see higher exports and economic growth in

SINGAPORE

2016. However, with a higher borrowing cost, this could potentially exert pressure on some of the largest countries in the region such as Angola, Nigeria, and South Africa.

Singapore economy Singapore’s GDP expanded by 6.2% q-o-q on a seasonally adjusted annualised (SAA) basis in Q4 2015, representing a higher q-o-q growth. On a yearly basis, the economy grew at a modest pace of 1.8% y-o-y in Q4 2015, unchanged from the preceding quarter. For the whole of 2015, the economy grew moderately by 2.0% y-o-y, down from 3.3% y-o-y in 2014. Both goods and services producing industries saw recoveries in Q4 2015. For the goods producing industries, the manufacturing sector was the weakest performer with a negative growth of 4.9% q-o-q (SAA) in Q4 2015, albeit at a lower extent of decline compared to the negative 6.0% q-o-q (SAA) in Q3 2015. This was primarily attributed to the contractions in the transport engineering, electronics and precision engineering clusters. Notwithstanding the drag by the transport & storage services cluster, the service producing industries were given a boost by 7.7% q-o-q (SAA) in Q4 2015, largely attributed to the finance & insurance cluster, which saw a q-o-q leap of 34.1% (SAA) in the same period compared to the marginal growth of 0.9% q-o-q (SAA) in Q3 2015. Singapore’s total external trade (at current prices) saw negative growth of 7.7% y-o-y in Q4 2015. Both export and import declined by 5.7% y-o-y and 9.9% y-o-y in Q4 2015, attributing to the falling oil prices that led to moderation in moderation in trade demand and supply respectively. The Consumer Price Index (CPI) contracted for the fourth consecutive quarter and reported a 0.7% y-o-y decline in Q4 2015. For the whole of 2015, CPI fell by 0.5% y-o-y, down from 1.0% y-o-y increase in 2014. This is attributed to the drag in prices for housing & utilities, household durables & services, transport and healthcare, which over-shadowed the price growth in food, education and communication components.

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Business expectations of services and manufacturing sectors According to a Business Expectations Survey conducted by the Department of Statistics for the first half of 2016, firms in services sector generally remained cautious about overall business outlook. A net weighted 18% of firms expected less favourable business climate between January 2016 and June 2016 while 10% of them remained optimistic. The remaining 72% predicted business conditions to be similar as that in the previous quarter. The finance and insurance industries were the most optimistic as they expected higher revenue in the first half of 2016 in view of rising interest rates. However, the accommodation and food & beverage clusters were the least upbeat as labour crunch continued to weigh on these labour-intensive industries with the existing foreign worker restrictions. On the manufacturing front, the majority of the manufacturers (a weighted 64%) expected business conditions in H1 2016 to remain similar as that in the previous quarter. A weighted 7% projected improvements in business outlook while the remaining 29% predicts weaker business. Where most clusters foresee lacklustre business sentiments for H1 2016, the biomedical manufacturing cluster projected optimism in business outlook due to strong export demand for the medical technology segment. Conversely, transport engineering cluster was the least upbeat industry as a result of the persistent low oil price, which dampened demand for rigs and offshore conversions. .

4

Outlook Singapore’s economic outlook remains cautious amid macroeconomic volatility, with GDP growth rate projected to be between 1% and 3% in 2016. Investors and industrialists in the manufacturing sector are expected to be the most prudent group as challenging business conditions persist. Labour-intensive industries, such as retail and food services, are likely to continue grappling with high operating costs and business consolidation strains

due to the prevailing labour crunch situation, while persistent low oil prices take a toll on rig building activities in the marine and offshore segment, albeit likely to be less intensive than in 2015. Service producing industries, such as insurance and financial services sectors, are envisaged to remain fairly resilient with healthy activities in wealth management and other financial and professional service provisions. Potentially, these service-oriented industries will be the main drivers of Singapore economy, particularly for H1 2016.

EXHIBIT 2

Singapore Key Economic Indicators Quarter-on-quarter (%)* Overall GDP Goods Producing Industries - Manufacturing - Construction Service Producing Industries Year-on-year (%) Total Trade - Imports - Exports Consumer Price Index (All Items)

Q4 2014

Q1 2015

Q2 2015

Q3 2015 Q3 2015

Q4 2015 Q4 2015

6.9%

0.2%

-1.6%

2.3%

6.2%

0.4% -1.9% 10.2%

-3.5% 6.7% -0.4%

-13.8% 7.7% 0.4%

-6.0% 0.2% 3.8%

-4.9% 6.0% 7.7%

-5.0% -6.0% -4.2% 0.0%

-10.8% -16.1% -6.0% -0.3%

-10.9% -13.0% -9.0% -0.4%

-8.5% -9.1% -8.0% -0.6%

-7.7% -9.9% -5.7% -0.7%

Source: Ministry of Trade and Industry (MTI), Knight Frank Research *The quarter-on-quarter GDP changes are seasonally-adjusted and based on 2010 prices.


RESIDENTIAL Island-wide private home prices (including Executive Condominiums) fell by 0.5% q-o-q in Q4 2015, marking the ninth consecutive quarter of decline. Overall rents slipped 1.3% q-o-q. Total transaction volume for the fourth quarter declined by 23.1% q-o-q, with new sale volume recording a significant quarterly drop of 33.5% q-o-q. Chinese regained its position as the top foreign homebuyer of Singapore properties.

Private Residential Sector

Transaction volume of the mass-market OCR segment saw the largest q-o-q decline of 51.1% to 1,445 units (Exhibit 1). This was mainly led by a slowdown in new sale units, which fell by a notable 69.3% to 638 units. The two preceding quarters had seen greater transaction activity stemming from popular new project launches, such as High Park Residences, North Park Residences, and Botanique at Bartley.

Overall transaction volume increased on a wholeyear basis, propped up by transactions in the Outside Central Region (OCR) The last quarter of 2015 saw total transaction volume of 3,199 units (new sale, subsale and resale), representing a 23.1% q-o-q increase. On a whole year basis, the total number of units transacted increased by 9.9% to 14,117 units. The positive performance in 2015 can be attributed to an increase in transactions in the OCR segment, particularly in the primary market.

On the other hand, the mid-tier Rest of Central Region (RCR) segment experienced 85.9% q-o-q growth to 1,366 transactions, of which 901 units were primary sales, reflecting a more than three-fold quarterly increase. This was attributed to well-received projects in the RCR, such as Principal Garden, The Poiz Residences and Thomson Impressions.

EXHIBIT 1

4,500

60.0%

4,000

50.0%

3,500

40.0%

3,000

2,610

2,500 2,000 1,500 1,000 500 0

1,302

30.0% 2,956

1,419

1,445

20.0% 10.0% 0.0%

719 860 739 Q4 2014

376 Q1 2015

CORE CENTRAL REGION (CCR) OUTSIDE CENTRAL REGION (OCR)

867

735

1,366

-10.0% -20.0%

627

468

388

Q2 2015

Q3 2015

Q4 2015

-30.0%

% Change in Total Transaction Volume

Number of Private Residential Units Transacted

Total transaction volume and Q-o-Q change of private residential units, by market segment

REST OF CENTRAL REGION (RCR) Q-O-Q% CHANGE (TOTAL)

Source: REALIS, Knight Frank Research

5


170

6

140

120

Q4 2014

OVERALL PPI

Q1 2015 NON-LANDED CCR

Q2 2015

Q3 2015

NON-LANDED RCR

Q4 2015

NON-LANDED OCR

LANDED


EXHIBIT 3

URA Private Residential Property Rental Indices, by market segment

115

110

105

Q4 2014

OVERALL PPI

Q1 2015 NON-LANDED CCR

Q2 2015

Q3 2015

NON-LANDED RCR

Q4 2015

NON-LANDED OCR

LANDED


EXHIBIT 4

Profile of private homebuyers* as at Q4 2015 5,000 4,000

Total No. of Units

The motivations behind this trend are largely unchanged for the last three months in 2015; slowdown in the Chinese economy, as well as uncertainty in Malaysia’s political scene and the Ringgit’s erratic movement have encouraged the respective groups of foreign homebuyers to seek more stable investment havens like Singapore.

150

130

Chinese regained position as top foreign homebuyer The proportion of foreign homebuyers fell slightly to 24.6% in Q4 2015, marking a fifth consecutive quarter of decline (Exhibit 4). Chinese homebuyers made up 31.1% of total transactions contributed by foreigners, regaining its position as the top foreign homebuyer of Singapore residential properties after two consecutive quarters of falling behind Malaysians. The latter accounted for approximately 23.5% of total transactions in Q4 2015. Indonesian buyers were a distant third, forming 7.6% of total foreign transactions.

160

3,000

28.5%

54

2,000 1,500

36

27.8% 26.8%

0

2,943

815

593

Q4 2014

Q1 2015

PRs & NON-PRs

2,398 24.9%

1,578

SINGAPOREANS

*Excluding Executive Condominiums (ECs) transactions

24.6%

1,014

1,027

793

Q2 2015

Q3 2015

Q4 2015

COMPANIES

% PRs & NON-PRs

Source: URA (based on data as at 26 February 2016), Knight Frank Research

27.0% 26.5% 26.0%

3,071

25.4%

1,000

27.5% 30

40 2,064

28.0%

34

25.5% 25.0% 24.5% 24.0% 23.5% 23.0%

% of buyers

For the last quarter of 2015, All Residential Property Rental Index fell by 1.3% q-o-q and 4.5% y-o-y (Exhibit 3). Rents for private non-landed properties declined 1.1% q-o-q while that for private landed homes saw a more significant drop of 2.3%. However, on a y-o-y basis, the slide in private non-landed home rents is slightly higher at 4.6% than that for private landed home rents at 4.5% decline.

URA Private Residential Property Price Indices, by market segment

Index (Q1 09 = 100)

According to the URA All Residential Property Price Index, private residential home prices (including EC) declined by 0.5% q-o-q or 3.7% y-o-y in Q4 2015 (Exhibit 2). The OCR saw no change on a quarterly basis, while the Core Central Region (CCR) and RCR saw q-o-q declines of 0.3% and 0.4% respectively. Notably, the 4.3% year-on-year (y-o-y) drop in RCR prices was most pronounced, followed by OCR at 3.7% and CCR at 2.5%. In line with broad trends, prices of private landed properties also fell by a notable 1.8% q-o-q and 4.1% y-o-y.

EXHIBIT 2

Index (Q1 09 = 100)

Prices for private homes continued to decline amid weak demand

SINGAPORE


EC new sale volume falls in tandem with decrease in number of EC units launched With only 505 units of EC launched in Q4 2015, the number of units sold fell by 52.7% to 573 units. This was a stark contrast to the scene in the preceding quarter, where 1,212 units were transacted out of the 2,387 units launched. Developers are seen to be deferring their launches to the first quarter of 2016 as they await clearer signs of market trends.

HDB Resale Price Index increased in Q4 2015 after nine quarters of decline In Q4 2015, the HDB Resale Price Index rebounded by 0.1% q-o-q after nine quarters of decline. However, it continued to fall on a y-o-y basis, albeit at a slower pace of 1.6%. The number of registered resale applications (including ECs) increased by 2.0% q-o-q to 4,992 in Q4 2015, and 1.3% q-o-q to 4,590 excluding ECs.

Singapore, homebuyers’ sentiments are likely to remain largely muted. As developers continue to price their developments realistically to drive sales and avoid hefty extension charges on unsold units, the downward trend in prices is expected to continue into Q1 2016. In light of the notable q-o-q increases in unsold stock in Q4 2015 for RCR and OCR properties, annual price falls of 2.0% to 2.5% and 2.0% to 4.0% are expected in Q4 2016 respectively. In particular, the upcoming launches of two ECs in the first three months of 2016, Wandervale and Parc Life, are expected to further add to the competition for mass-market homebuyers. With shrinking unsold inventory and a sizable pool of homebuyers scouring for value-buys in the high-end segment, annual price falls for luxury homes are likely to be more moderated, in the range of 1.5% to 2.0% in Q4 2016. As at Q4 2015, the vacancy rate of private residential units was 8.1%, a slight increase from the 7.8% recorded in the previous quarter. Some 21,906 private residential units are expected to

Total number of HDB resale applications was 17,909 units (excluding EC) in 2015, slightly higher than 16,204 in 2014. Applications are expected to continue to increase in 2016, as more Build-to-Order flats are completed and owners need to offload their existing flats. As such, prices are expected to continue to decline on a y-o-y basis, although at a much slower rate of less than 1.0% in 2016.

HDB Resale Price Index and % Change 0.50%

137.5 137.0

-0.50%

136.5

Index (Q1 09 = 100)

With some highly-anticipated projects being lined up for launch, the first three months of 2016 is likely to see a higher number of newly-launched units. Nevertheless, in light of the prevailing economic uncertainties and recent hikes in the Singapore Interbank Offered Rate (SIBOR) pushing up mortgage costs, homebuyers are expected to remain highly cautious when making their purchase decisions. As such, total developers’ sale volume for Q1 2016 is forecast to range between 1,000 and 1,200 units.

HDB Resale prices expected to decline y-o-y but at a decelerating rate in 2016

EXHIBIT 5

Outlook Total new sales volume to range between 1,000 and 1,200 units in Q1 2016

be completed in 2016, higher than the 18,634 units of new supply in 2015. The large upcoming supply is expected to put downward pressure on rents as landlords face more competition for a shrinking pool of tenants. The continued tightening of foreign hiring and reductions in housing allowances are likely to lead to landlords moderating their asking rents in order to secure and retain tenants. As such, overall private home rents are expected to see an annual decline of 4.0% to 6.0% in Q4 2016.

-1.50%

136.0 135.5

-2.50%

135.0

-3.50%

134.5

-4.50%

134.0

-5.50%

133.5 133.0

Q4 2014

Q1 2015

HDB RESALE PRICE INDEX

Q2 2015

Q-O-Q% CHANGE

Q3 2015

Q4 2015

% Change in HDB Resale Price Index

Public Residential and Executive Condominium (EC) Sectors

-6.50%

Y-O-Y% CHANGE

Source: HDB, Knight Frank Research

In view of the government’s recent reiteration that it is still “too early” to lift property market curbs and as economic growth patterns may turn south for

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RETAIL Conventional festive seasons, coupled with declines in prime and average retail rents failed to revive retail occupancy in Q4 2015. A modest outlook for retail property market is expected, as retailers stay cautious about expansionary plans amid persisting labour woes and a bleaker economic outlook.

Retail Sales and Tourism Weaker year-on-year retail sales recorded in Q4 2015 Overall retail Sales Index (RSI, excluding Motor Vehicles), dipped 3.4% y-o-y in Q4 2015, despite the year-end festive season. Retail sales for Food & Beverage, Wearing Apparel & Footwear and Telecommunications Apparatus & Computers saw double-digit negative growths of 11.1% and 19.2% y-o-y respectively in Q4 2015. Additionally, retail sales for Wearing Apparel & Footwear, Furniture & Household, Recreational Goods, Watches & Jewellery and Optical Goods & Books fell between 1.8% and 7.7% y-o-y in the same quarter. The RSI for Petrol Services fell for eight consecutive quarters, posting 13.2% y-o-y decline in Q4 2015 due to lower oil prices.

Despite the festive seasons, sales at Department Stores and Supermarkets remained muted, recording only 0.1% y-o-y growth in Q4 2015. Meanwhile, sales of Medical Goods & Toiletries stayed robust at 8.1% y-o-y growth in the same quarter. According to preliminary estimates from the Singapore Tourism Board (STB), international visitor arrivals totalled 15.2 million in 2015, 0.9% higher than 15.1 million in 2014. Conversely, tourism receipts were estimated to have dropped by 6.8% y-o-y to S$22 billion in 2015. Indonesia, China and Malaysia remained as the top three groups of visitor arrivals in 2015. Chinese visitors grew by 22% y-o-y in 2015, largely attributed to increased flight connectivity to first tier and second tier Chinese cities. Visitor arrivals from Indonesia and Malaysia fell 10% and 5% y-o-y in 2015, as the rupiah and ringgit depreciated against the Singapore Dollar over the past year.

EXHIBIT 1

Retail Sales Indices

Index (base year 2014)

120.0

110.0

100.0

90.0

80.0 Q4 2014 RETAIL SALES INDEX FOOD & BEVERAGES

Q1 2015

Q3 2015

Q4 2015

DEPARTMENT STORES SUPERMARKETS WEARING APPAREL & FOOTWEAR WATCHES & JEWELLERY

Source: Singstat, Knight Frank Research

8

Q2 2015


Overall retail space stock grew by 0.4% q-o-q to 64.2 million sq ft in Q4 2015, with total demand growing marginally by 0.1% q-o-q to 59.6 million sq ft. Island-wide occupancy slipped to 92.8% in Q4 2015, after short-lived recovery to 93.0% in Q3 2015. Occupancy in the Outside Central Region (OCR) posted a 1.2pp fall to 94.5%, largely due to the expanded retail space stock in the suburbs during Q4 2015. The recent opening of Waterway Point could have dragged the occupancy in OCR lower since not all retailers have shifted into their new premises. Downtown Core Planning Area continued to record a lower occupancy of below 90% for the fourth consecutive quarter. Orchard Planning Area, Rest of Central Area and Fringe Area saw stable occupancies between 91.1% and 93.3%. Apart from enticing retailers to take up retail spaces by offering flexible rental terms, some owners of older malls have taken the opportunity to embark on Asset Enhancement Initiatives (AEI) to cater to changing consumer preferences and business needs of retailers.

Rental Performance Retail Space Rents fell for fourth consecutive quarter Based on URA Retail Space Rental Indices, retail rents declined across the Central Region, Central Area and Fringe Area by 1.3%, 1.7% and 0.3% q-o-q respectively in Q4 2015. Compressed rental growth is

Suburban mall rents came under pressure in Q4 2015, dragged lower by malls with weaker mall positioning and trade mixes. It was the first quarter in which suburban malls have shown weakness since five quarters of gradual rental growth.

EXHIBIT 2

Island-wide New Supply, New Demand, and Occupancy 1,500

95.0% 94.5%

1,000 94.0% 500

93.5% 93.0%

0

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

-500

Occupancy Rate (%)

Island-wide retail space occupancy fell to all-time low of 92.8%

Island-wide retail rents of prime spaces weakened further to $32.40 per sq ft (psf) in Q4 2015, down from $32.60 psf in Q3 2015 due to a softer retail market. Prime retail rents in Orchard Road and the City Fringe remained fairly stable, as

Net Lettable Retail Space ('000 Sq ft)

Retail Demand, Supply, and Occupancy Rate

Prime retail rents in City Fringe remained resilient

prime spaces in these areas continued to be sought after by retailers despite the weaker market sentiment. Meanwhile, due to a 7.5% y-o-y increase in retail space within the Downtown Core planning area in Q4 2015, prime retail rents in the Marina Centre, City Hall and Bugis precinct softened 2.7% y-o-y to S$31.80 psf in Q4 2015.

expected to continue into 2016 amid the challenging global economic outlook, stiff labour policies, worker wage pressures and the onslaught of new retail space supply back home in Singapore.

92.5% 92.0%

NEW SUPPLY

NEW DEMAND

OCCUPANCY


EXHIBIT 3

URA Retail Rent Indices 125

Indices (4Q98 = 100)

Singapore’s tourism sector is expected to face stronger headwinds in 2016, in view of the anticipated slower global economic growth and rising regional competition for tourist growth. Taking into account the various challenges ahead, STB forecasts overall international visitor arrival numbers to reach between 15.2 and 15.7 million, and tourism spending to be between S$22.0 and S$22.4 billion in 2016.

SINGAPORE

115

105

Q4 2013

Q1 2014

CENTRAL REGION

Q2 2014

Q3 2014

CENTRAL AREA

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

FRINGE AREA

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Estimated annual supply of 950,000 sq ft of key malls coming on-stream till 2020 In Q4 2015, an estimated of 435,000 sq ft of retail space was completed, bringing the estimated total completed space for the full year of 2015 to 1.0 milllion sq ft. An estimated 1.3 million sq ft of retail space is expected to be completed in 2016, 29.3% higher than 2015. Some of the major malls slated for completion in 2016 include Downtown Gallery and Tanjong Pagar Centre. Between 2016 and 2020, approximately 4.8 million sq ft of net lettable retail space will come on-stream in Singapore, averaging 950,000 sq ft of new major retail space per year. This is lower compared to the average new supply of 1.2 million sq ft from major malls that were seen between 2011 and 2015.

EXHIBIT 4

Upcoming Retail Supply from major developments in Key Precincts 1,600

Netl Lettable Retail Space ('000 sq ft)

Outlook

1,400 1,200 1,000 800 600 400 200 0 2016

2017

2018

FRINGE AREA DONWTOWN CORE REST OF CENTRAL AREA SUBURBAN

2019

2020

ORCHARD

Source: Knight Frank Research

EXHIBIT 5

Average Retail Rents for Prime Spaces, Q4 2015

Woes of the retail market to persist in 2016

Location

The retail market is expected to weaken further this year with the local manpower crunch, weaker consumer sentiment and bleak global economic outlook in 2016.

Island wide Orchard Road Marina Centre, City Hall, Bugis City Fringe Suburban

Major retailers are also expected to continue the process of increasing operational efficiency and consolidating their operations, which could cause vacancy to rise further in some malls. Mall owners are encouraged to look ahead on reinventing their positioning and concepts, and to work closely with retailers to encourage sustainability on a longer term basis. The expected upcoming supply of new retail space is also likely to put a lid on the growth of prime retail rents islandwide in the medium term. Island-wide average rents are expected to see negative growth of up to 5% y-o-y by Q4 2016, while prime rents could soften further by up to 3% in 2016. Overall occupancy rate could also slip by up to 2.8 pp for the full year to between 90% and 92% by Q4 2016, as more retailers are turning more cautious in their expansionary plans in 2016.

10

Average Monthly Gross Rentals (Prime Spaces) (S$ per sq ft)

y-o-y change

q-o-q change

S$32.40 S$36.90 S$31.80 S$23.70 S$32.60

1.3% 2.5% -2.7% 2.9% 1.3%

-0.8% -0.1% -2.9% 0.7% -1.4%

Source: Knight Frank Research (1)Retail Rents are rounded off to the nearest ten cents (2)Prime Spaces refers to rental-yielding units between 350 and 1,500 sq ft with the best frontage, connectivity, footfall, and accessibility in a mall which are typically the ground level of a retail mall and/or the basement level of a retail mall that is linked to a MRT or bus station.


OFFICE Island-wide occupancy continued to inch upwards in Q4 2015 mainly due to the withdrawal of available office stock. Muted macroeconomic and business conditions led to lower demand for new office spaces. With an influx of over 4 million sq ft of office space by end 2016, downward pressure on prime office rents will continue throughout 2016.

Supply, Demand, and Occupancy New demand for offices at Outside Central Region surged in Q4 2015 Total island-wide available office stock slipped marginally to 81.4 million sq ft in Q4 2015, with the net new supply recording a withdrawal of 226,000 sq ft of office space from total available stock. Fragrance Empire Building (recently completed additions and alterations works) and PS100 at Peck Seah Street were granted Temporary Occupation Licences (TOPs) during the quarter, contributing a combined Gross Floor Area of 358,400 sq ft (33,300 sq m). New demand for island-wide office space continued to fall for the second consecutive quarter from 161,000 sq ft in Q3 2015 to a negative demand of 108,000 sq ft in Q4 2015 (Exhibit 1). All areas

within the Central Region saw negative new demand during the quarter, with the Downtown Core registering the highest q-o-q decline from a net new demand of 151,000 sq ft in Q3 2015 to a negative demand of 194,000 sq ft in Q4 2015. Meanwhile, office demand in the Outside Central Region (OCR) bucked the overall downward trend with a whopping 333% jump in new demand to 140,000 sq ft for Q4 2015. It is expected that this trend will continue for the next few quarters, as companies will be more cautious amid economic growth uncertainties, and will be open to cheaper relocation options in the next two to three quarters of 2016. Island-wide office occupancy rose to 90.5% in Q4 2015, mainly due to the further withdrawal of available office space from the market. Occupancy rate for Downtown Core slipped 0.1 ppt to 90.9% while occupancy for OCR posted a 2.0 ppt increase to reach 88.9% during the same quarter.

EXHIBIT 1

Island-wide Office New Supply, Demand and Occupancy 1,800

91.0%

1,400

90.5%

1,200 1,000

90.0%

800 600

89.5%

400 200

Q4 2015

0 -200

Q4 2014

Q1 2015

Q2 2015

NEW DEMAND

OCCUPANCY

-400

Occupancy Rate (%)

Net Floor Area ('000 Sq ft)

1,600

89.0%

Q3 2015 88.5%

NEW SUPPLY


11


The weaker office rental performance in Q4 2015 is a direct reflection of slowing office leasing activities and transactions, particularly for prime office spaces in the Central Business District (CBD). The capacity for new office spaces waned as businesses mull over options to manage costs amid growing market uncertainty. Prime office rents in the CBD saw steeper declines in Q4 2015 compared to the third quarter. Average rents for Raffles Place/Marina Bay Grade A+ and Grade A office spaces slipped 3.2% q-o-q and 1.0% q-o-q in Q4 2015, respectively. Shenton Way/ Robinson Road/ Tanjong Pagar Grade A precinct posting a 0.7% q-o-q drop and Suntec/Marina Centre exhibiting a noticeably steeper decline of 1.2% q-o-q in Q4 2015. According to URA Rental Indices, office rents continued to fall for the third consecutive quarter with the Fringe Area registering the highest q-o-q decline of 2% in Q4 2015. Rents in the Central Area slipped 1.7% q-o-q in Q4 2015, albeit at a lower magnitude than 3.1% q-o-q decline in Q3 2015.

Outlook Projected rentals for 2016 to fall with modest demand for new office spaces The influx of 4.1 million sq ft new office space by end of 2016, of which a significant proportion would come from the CBD, has been a key factor to compress top Grade office rentals in this district. The absorption of Grade A+ available spaces did not keep pace with rising vacancy in the last three months of 2015, contributed in part to the year-end lull season but more so due to the lack of new demand from enterprises. Pre-commitments of office spaces in upcoming new developments are observed to remain fairly muted at the start of 2016, yet with general expectations that the pre-commitment level could improve from mid-2016 as some developments

12

In view of potentially rising turbulence in global markets that could adversely impact growth prospects of various business sectors, demand for new office spaces is envisaged to be fairly modest with about 2% to 3% annual growth in

occupied stock island-wide. Coupled with the impending large supply of new office developments in the CBD by end this year, prime office rentals in the CBD are projected to decline by 7% to 10% y-o-y in Q4 2016.

EXHIBIT 2

Average Office Rentals by Key Precincts in Q4 2015 Location

Gross Effective Monthly Rentals (S$ psf)

Quarter on Quarter Change

$11.70 - $12.80 $10.10 - $10.70 $8.00 - $8.40

-3.2% -1.0% -0.7%

$7.50 - $10.20 $10.40 - $11.90 $8.00 - $8.60 $7.70 - $8.10

-0.4% -1.2% -0.2% -0.9%

$5.40 - $8.10 $4.40 - $6.20

-0.3% -0.3%

CBD Raffles Place / Marina Bay Grade A+ Raffles Place Grade A Shenton Way / Robinson Road / Tanjong Pagar Grade A Central Area (Outside CBD) Orchard (Overall) Marina Centre / Suntec City Hall Bugis Others Fringe Areas Suburban Areas Source: REALIS, Knight Frank Research

(1) Rents indicated herein are gross effective monthly rents taking into account rental concessions and any rent free period (2) Rents are based on units with a net lettable area (NLA) of about 2,500 to 5,000 sq ft (3) Rents are expressed as values rounded to nearest 10 cent.

EXHIBIT 3

URA Office Rental Indices 200 190 Office Rental Index

Higher magnitude of downward adjustments to prime office rents in Q4 2015

approach completion.

180 170 160 150 140 130

Q4 2014

CENTRAL AREA

Q1 2015 CENTRAL REGION

Q2 2015

Q3 2015

Q4 2015

FRINGE AREA


EXHIBIT 4

Major Upcoming Office Supply in Key Precincts, as at Q4 2015 4,500 Gross Floor Area (’000 sq ft)

Office Rents

SINGAPORE

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2016

2017

2018

2019

2020

Beyond 2020 / NA

ORCHARD SHENTON WAY / ROBINSON ROAD / TANJONG PAGAR MARINA BAY / RAFFLES PLACE FRINGE EAST FRINGE WEST SUNTEC / MARINA / CITYHALL & REST OF CENTRAL AREA SUBURBAN



INDUSTRIAL Despite weakening manufacturing performance, factory occupancy remained stable in Q4 2015. Substantial increase in new supply of warehouse and decreasing new demand led to a slip in occupancy rate. Islandwide rents continued to face downward pressure while over 31 million sq ft of industrial spaces will be ready by end of 2016.

Manufacturing Sector Singapore’s manufacturing sector suffered a 6.7% y-o-y contraction in Q4 2015, extending its 6.0% y-o-y fall in the preceding quarter. The manufacturing sector saw an annual decline in output by 5.2% in 2015, reversing its 2.7% annual growth in 2014. This was attributed to contractions in output for all clusters except the chemicals cluster, which saw a 3.9% annual growth in 2015.

Supply, Demand and Occupancy Significant increase in new demand led to unchanged occupancy in Q4 2015 New supply of factory space (including business parks) fell by 11.3% q-o-q to 3.3 million sq ft in Q4 2015. Some major factory developments that were fully completed and injected into the market during the quarter included JTC aerospace (Phase Two) at Seletar Aerospace Park, M38 at Jalan Pemimpin, Win 5 developed by Soon Hock Tuas Development Pte Ltd and Apex @ Henderson. New demand of factory space registered a significant 79.6% q-o-q increase or 2.9 million sq ft in Q4 2015, largely attributed to a higher demand in business park space (200.0% q-o-q increase) during the quarter. With a lower new supply and high new demand, occupancy rate remained unchanged for two quarters at 90.4%.

Warehouse occupancy slipped to 91.4% due to notable increase in new supply New supply for warehouses posted a substantial 81.8% q-o-q increase to 2.2 million sq ft in Q4 2015, while new demand fell by 53.3% q-o-q to 0.9 million sq ft during the quarter. As a result, occupancy slipped marginally by 1.1 ppt to 91.4% in Q4 2015. Some major warehouse developments that were granted TOPs in Q4 2015 included The Westcom, a warehouse development at 10 Pioneer Crescent developed by Kuehne + Nagel Real Estate Pte Ltd, and the completion of additions and alterations works to C&P Logistics Hub at Penjuru Lane. Partial completions of four warehouses totalling 2.2 million sq ft (201,400 sq m) GFA were also injected into the market during the quarter.

Industrial Rents Contraction of overall industrial rents continued in Q4 2015 The JTC All Industrial Property Rental Index continued to contract for the third consecutive quarter with a 1.1% q-o-q decline in Q4 2015, while it posted its sixth consecutive y-o-y contraction of 2.1%. All industrial segments registered q-o-q declines in rents except for business parks, which remained unchanged. Rents from the warehouse segment saw the highest q-o-q decline of 1.5%, while both multiple-user factory and single-user

13


Island-wide Industrial New Supply, Demand and Occupancy (Factory) 5,000

91.4%

4,500

91.2%

4,000

91.0%

3,500 3,000

90.8%

2,500 90.6%

2,000 1,500

90.4%

1,000

90.2%

500 0

Occupancy Rate (%)

Rents for multiple-user factory spaces declined in all planning regions, albeit at a slower rate in Q4 2015. The North-east Region continued to suffer the highest decline among the five planning regions, registering rental falls by 2.9% q-o-q and 11.3% y-o-y.

EXHIBIT 1


factory rents slipped marginally by 1.2% in Q4 2015. On a y-o-y basis, rents for all industrial property segments declined with multiple-user factory experiencing the highest fall of 3.3%. Rents for single-user factory, business parks and warehouses decreased by 0.8%, 1.2% and 1.6% y-o-y respectively.

SINGAPORE

Q4 2014

NEW SUPPLY

Q1 2015 NEW DEMAND

Q2 2015

Q3 2015

Q4 2015

90.0%

OCCUPANCY


Asking rents in Kaki Bukit – Ubi – Paya Lebar – Eunos dropped by 1.9% q-o-q to $2.57 psf in Q4 2015. Asking rent is expected to improve by the end of 2016 with the slated completion of the new Downtown Line Stage 3. Connectivity to the industrial developments within this cluster will improve markedly when the MRT line is in full operations by 2017.

3,000

93.0%

2,500

92.5% 92.0%

2,000

91.5%

1,500

91.0%

1,000

90.5%

500

90.0%

0

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

89.5%

-500

89.0%

-1,000

88.5% NEW SUPPLY

NEW DEMAND

Occupancy Rate (%)

Slow demand for industrial units within the Pioneer – Tuas cluster is impacted largely by inconveniences in road accessibility due to the ongoing construction of MRT stations in the vicinity. This led to a 2.2% q-o-q decline in average asking rent in the quarter.

Island-wide Industrial New Supply, Demand and Occupancy (Warehouse)


Overall asking rents posted its third consecutive q-o-q decline by 0.3% to $2.40 per sq ft per month (psf pm) in Q4 2015. Kallang - Geylang - Bendemeer cluster saw a 5.7% q-o-q growth in average asking rents, attributed to healthy take-up in the cluster.

EXHIBIT 2

OCCUPANCY


EXHIBIT 3

JTC Rental Indices of Industrial Space 111

Rental Index (Q4 2012 = 100)

Third consecutive quarter decline in overall asking rents

109 107 105 103 101 99 97

Q4 2014

ALL INDUSTRIAL BUSINESS PARK

Q1 2015 MULTIPLE-USER FACTORY WAREHOUSE

Q2 2015

Q3 2015

Q4 2015

SINGLE-USER FACTORY

Source: REALIS, Knight Frank Research Notes: Before 4th Quarter 2014, the rental index is computed based on transactions of multiple-user factories and multiple-user warehouses in the Central Region, with weights updated every quarter using past 12 quarters transaction values. From 4th Quarter 2014, the rental index is computed based on island-wide transactions of multiple-user factories, single-user factories, business parks and warehouses. The weights used are fixed using 2012 transaction values. The rental index is also re-scaled to 100 at 4th Quarter 2012. Due to rounding, there could be some differences in the quarterly rental change compared to the rental index before re-scaling.

14


A pipeline supply of a total estimated 45.7 million sq ft Gross Floor Area (GFA) of new factory (including business parks) and 17.1 million sq ft of warehousing space is expected by 2020. However, there will not be any completions of new business park developments beyond 2016. For 2016 alone, about 31.1 million sq ft or 49.5% of total industrial pipeline supply will be completed. Of which, single-user factory and warehouse segments will contribute 15.5 million sq ft and 6.9 million sq ft of industrial space respectively, while 6.6 million sq ft will be attributed to multiple-user factory spaces.

Outlook Industrial sector to remain subdued amid dull manufacturing business outlook Challenging business conditions in the manufacturing sector are likely to prevail for the first two quarters of 2016. This is on top of the volatile global equity markets that were hit by record-low oil prices, falling commodity prices and the slowing Chinese economy. In the face of continuing business consolidation and restructuring and coupled with a large injection of new industrial supply in 2016, average rentals of industrial spaces is envisaged to decline further by 3% to 5% by H1 2016. Where cost-savings is one of the key considerations to keep businesses afloat, industrialists are likely to go for lowerpriced spaces. Landlords and sellers are likely to face higher pressures to adjust asking prices and rents to increase the probability of clinching buyers and tenants.

Enhancement of building specifications to meet demands from emerging manufacturing niches

to enhance their building specifications to meet the increasing needs of some key growth industries such as 3D printing facilities, chemicals, pharmaceuticals and biomedical manufacturing fields.

Expanding e-commerce activities set higher momentum for logistics and warehousing industry With heavier reliance on marketing and shopping through the internet, e-commerce is growing in importance for Singapore. Rapid expansion in

e-commerce saw an increase in demand for more web-based platforms. Growth in demand for smartphone applications and more user-friendly platforms benefits niche software design firms. Initial low barriers of entry into e-commerce business have prompted companies such as Redmart to kick-start their business without a physical store presence in Singapore. Where the expanding e-commerce business operations require efficient logistics support and warehousing space, it creates a potential niche for the sector to cater for the expanding needs of e-commerce players in the market.

EXHIBIT 4

Average Monthly Gross Rentals (Asking) for Conventional Industrial Space, by Key Clusters Monthly Gross Rentals (Upper Floor, S$ psf) Q3 2015 Q4 2015

Industrial Cluster Kaki Bukit - Ubi - Paya Lebar – Eunos Macpherson - Tai Seng – Defu Kallang - Geylang – Bendemeer Bukit Merah - Alexandra - Jalan Kilang - Pasir Panjang Serangoon - Ang Mo Kio - Lorong Chuan -Toa Payoh - Pemimpin Clementi - Toh Tuck - Bukit Batok Pioneer - Tuas Woodlands - Sembawang - Admiralty- Yishun Average Business Park Space (Island-wide)

$2.62 $2.04 $3.51 $3.40 $2.29 $1.96 $1.85 $1.58 $2.41 $4.53

% Change (q-o-q)

$2.57 $2.03 $3.71 $3.35 $2.32 $1.90 $1.81 $1.51 $2.40 $4.52

-1.9% -0.5% 5.7% -1.5% 1.3% -3.1% -2.2% -4.4% -0.3% -0.2%

Source: Knight Frank Research * Range of rentals are estimated based on the average of minimum and maximum asking rentals derived from surveys *Only rents of units on upper floors are included *Starting from Q3 2015, a new industrial cluster, Pioneer – Tuas is inserted as one of the key clusters.

EXHIBIT 5

Industrial Space Supply in the Pipeline, as at Q4 2015 35,000 30,000

Gross Floor Area ('000 sq ft)

Upcoming Supply

25,000 20,500 15,000 10,000 5,000 -

2016

MULTIPLE-USER FACTORY

2017

2018

SINGLE-USER FACTORY

2019 BUSINESS PARK

2020 WAREHOUSE


As Singapore undergoes economic restructuring with the identification of new niches in the higher-value added industries, it is imperative for landlords

15


INVESTMENT & CAPITAL MARKETS Amid macroeconomic uncertainties, continuance of property market cooling measures and waning market sentiment, total investment sales value in Singapore recorded its second consecutive year of decline with 6.3% annual decrease to $18.10 billion in 2015.

Overview Commercial sector retained top position as 2015 comes to a close Total investment sales value rose to $6.65 billion in Q4 2015, marking a notable 120.4% quarter-on-quarter (q-o-q) or 120.1% y-o-y, increase (Exhibit 1). The private sector contributed the bulk of investment sales activity in Q4 2015 with $5.62 billion, a marked 123.3% q-o-q increase in the private sales value and making up 84.5% of total investment sales. Public investor activity also saw an increase of 105.9% q-o-q to $1.03 billion. The commercial sector retained its market lead with $4.44 billion, or 66.7% of total investment sales value in the quarter (Exhibit 2). The residential sector contributed $1.33 billion, posting 30.7% q-o-q and 4.0% y-o-y increase and

constituted 20.0% of total investment sales in Q4 2015. Total investment value is estimated to be $18.10 billion for whole of 2015, posting 6.3% annual decrease. The commercial sector formed 56.5% of investment value compared with 41.1% in 2014.

Residential Government Land Sales (GLS) sites saw continued interest as developers sought to replenish their land banks The public sector saw a fairly high level of investment activity as both local and foreign developers looked to ramp up their land-banking strategy. The average number of bidders for GLS programme edged up from 8.5 in Q3 2015 to 9 in Q4

EXHIBIT 1

Total Investment Sales, by Sector Origination

Investment Sales ($ billion)

$7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 Q4 2014 PUBLIC INVESTMENT SALES

Q1 2015

Q2 2015

Q3 2015

Q4 2015

PRIVATE INVESTMENT SALES

Source: Knight Frank Research To be considered as private investment sales under Knight Frank Research definition, it must fulfil either of the following pre-requisite:-Investment transactions should comprise an entire building or property with a total worth of S$10 million and above; OR -Any bulk sales within a development which amounts to $10 million or more 1 Public Investment Sales: The sale of a development site that is made available by the government to private entities. 2 Private Investment Sales: Sales transaction of an existing development made between two private entities.

16


In the private sector, total residential investment sales value declined 39.8% q-o-q to $0.33 billion. The largest transaction involved the purchase of a freehold landed housing redevelopment site at East Coast Avenue by property developer Pinnacle Assets. The site was transacted for about $46.4 million, which translates to an average price of $1,025 per sq ft (psf) based on the land area of 45,251 sq ft.

Commercial Investment activities driven by capital recycling and balance sheet restructuring strategies After a dismal performance in the previous quarter, total investment sales of commercial properties rose by more than three folds to $4.44 billion in Q4 2015 (Exhibit 3). In November 2015, the CPF Building at 79 Robinson Road was acquired by Ascendas Land for $550.0 million. This also marks the thirdlargest transaction to be concluded for the commercial sector in H2 2015, falling behind OUE Commercial REIT’s acquisition of 67.95% in One Raffles Place for circa $1.15 billion and CapitaLand Mall Trust’s acquisition of Bedok Mall for $783.1 million. The fourth quarter also saw property developer City Developments Limited (CDL) executing its second large-scale capital recycling strategy with the Profit Participation Securities

rose by 22.6% q-o-q to $649.8 million in Q4 2015. The largest transaction was the purchase of One@Changi, a nine-storey business park development, by Ascendas Real Estate Investment Trust (A-REIT) for approximately $420.0 million. The acquisition formed part of A-REIT’s move to strengthen its presence and market share in the business park segment in the Eastern Region.

platform. Three office properties, namely Central Mall office tower, Tampines Grande and Manulife Centre were sold for approximately $1.07 billion to a joint office investment platform co-owned by CDL and Alpha Asia Macro Trends Fund II, which is managed by Alpha Investment Partners Limited.

Industrial

In the public sector, four B2-zoned industrial sites were awarded for a paltry total of $28.7 million under the iGLS programme, which marked a significant 81.5% y-o-y decline. This reflects the continuing bearish market sentiment as industrialists remain highly cautious in their business expansion plans.

Public sector investment activity remained subdued The industrial sector recorded a total investment sales value of $678.5 million in Q4 2015, a notable 21.3% q-o-q increase and 20.7% y-o-y decrease (Exhibit 3). Total transaction value in the private sector EXHIBIT 2

Total Investment Sales, by Development Type $7.0

Investment Sales Value ($ billion)

2015. In the same quarter, three private non-landed residential GLS sites were awarded. Leading in terms of transaction value was a mixed-use site at Alexandra View (Parcel A), which attracted a total of 10 bidders. The top bid of circa $376.9 million or $851 per sq ft per plot ratio (psf ppr) was put in by Tang Skyline Pte Ltd (part of the Tang City Holdings or the Tang Group of companies). Similarly, a strong response with 11 bids was received for the GLS site at Lorong Lew Lian. Located within walking distance to Serangoon MRT station and the Nex shopping mall, the site provides good accessibility and convenience. This site was awarded to a joint venture comprising Verwood Holdings Pte Ltd, Intrepid Investments Pte Ltd and TID Residential Pte Ltd with a top bid of about $321.0 million or $710 psf ppr.

SINGAPORE

$6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 Q4 2014 RESIDENTIAL

Q1 2015 COMMERCIAL

Q2 2015 INDUSTRIAL

Q3 2015

OTHERS

Q4 2015

HOSPITALITY


EXHIBIT 3

Public, Private and Total Investment Sales Residential Investment Sales Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Commercial Investment Sales Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Industrial Investment Sales Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

Public ($ billion)

Private ($ billion)

Total ($ billion)

$0.68 $0.78 $1.06 $0.47 $1.00

$0.60 $0.44 $0.63 $0.55 $0.33

$1.28 $1.22 $1.69 $1.02 $1.33

$0.01 $0.19 $1.67 $0.00 $0.00

$0.39 $1.46 $1.05 $1.43 $4.44

$0.39 $1.65 $2.72 $1.43 $4.44

$0.15 $0.03 $0.02 $0.03 $0.03

$0.70 $0.56 $0.22 $0.53 $0.65

$0.86 $0.60 $0.23 $0.56 $0.68


17


Inbound and Outbound Investments

EXHIBIT 4

EXHIBIT 5

Outbound Investment Sales* in Q4 2015, by development type

Outbound Investment Sales* in 2015, by development type

Total outbound1 property investments by Singapore-based buyers fell slightly by 6.3% q-o-q to S$12.95 billion in Q4 2015. Industrial properties remained the top pick for Singapore investors, contributing 52.1% of total outbound investment transactions in Q4 2015 (Exhibit 4). Leading the way in the industrial sector is the acquisition of a portfolio of industrial properties in the United States (US) by Global Logistic Properties (GLP) for total of S$6.34 billion. This acquisition is expected to consolidate GLP’s position as the second largest logistics property owner and operator in the US. Total inbound 2 investment into Singapore by foreign entities rose by four folds to S$0.70 billion in Q4 2015, reversing two consecutive quarters of decline. One of the most notable transactions is the purchase of Big Hotel for S$203.0 million by Hong Kong-based private equity firm Gaw Capital. This also marked the first investment deal concluded by an overseas-based investor in the hospitality sector since Q3 2014.

INDUSTRIAL

52.1%

INDUSTRIAL

39.9%

RETAIL

16.2%

RETAIL

13.0%

OFFICE

15.0%

OFFICE

18.6%

MIXED DEVELOPMENT

6.7%

MIXED DEVELOPMENT

HOTEL

5.6%

HOTEL

DEVELOPMENT SITE

3.4%

DEVELOPMENT SITE

5.0%

OTHERS

0.8%

OTHERS

0.4%

RESIDENTIAL

0.2%

RESIDENTIAL

2.1%

Source: Real Capital Analytics (RCA), Knight Frank Research *Only transactions more than US$2.5 million are included in the analysis.

1 Outbound investments refer to all outbound capital flows relating to the direct and indirect acquisition (e.g. equity stake) of a property situated outside of Singapore, by Singapore-based entities. Only transactions with quantum of at least US$3.5 million are captured. 2 Inbound investments refer to all inbound capital flows relating to the direct or indirect acquisition (e.g. equity stake) of a property situated within Singapore. Only transactions with quantum of at least S$3.5 million are captured.

18

Source: Real Capital Analytics (RCA), Knight Frank Research

8.4% 12.4%


SINGAPORE

Market Outlook

Possibly quarterly movement in Investment Sales Value in Q1 2016

Sector

Outlook

Residential Bulk sale-and-purchase expected to heat up, but deals will hinge on finding the right price

•Despite a rising interest in bulk sale-and-purchase of private residential units, the private sector is expected to see a drop in investment sales value for Q1 2016. The price gap expectation between buyers and sellers is likely to persist and hinder the conclusion of investment deals. •Due to the prevailing weak market sentiment, developers are likely to remain highly cautious in their land-banking strategies.

Commercial Private investment activity expected to be spurred on by capital recycling strategies

•The private commercial market is expected to see a continuance of assets being transacted between related entities as part of wider capital recycling strategies. •With no commercial sites and only one commercial-and-residential site being put on the H1 2016 GLS Confirmed list, the public sector is expected to see a contraction in investment sales value.

Industrial Investment play in strata-titled units expected to lose shine

•Amidst the weakened economic conditions and negative manufacturing sentiments, industrialists are adopting a more conservative stance in their expansion plans. Investment activity in strata-titled units is expected to recede further. •End-users are expected to turn towards the industrial Government Land Sales (iGLS) programme and direct allocation of land by JTC to fulfill their space needs. However, the relatively long approval period could lead to a further slowdown in public investment sales activity.

Hospitality Private investment activity expected to decline due to price gap expectation between buyers and sellers

•While sellers are still pricing opportunities on a per key basis, potential buyers are basing prices on revenue, which has been impacted by the muted outlook for the tourism and hospitality industry. The mismatch in cap rate is likely to persist and impede transaction activity.

Inbound Investments Foreign-based investors most likely to be attracted towards development sites

•Development sites are expected to generate the highest level of interest among foreign-based investors. A large proportion of these investors are expected to come from mainland China.

Outbound Investments Singapore-based investors expected to be more selective in their investment approach

•In light of heightening macroeconomic uncertainties and yield compression especially for properties in gateway cities, Singapore-based investors are expected to adopt an increasingly conservative approach in their overseas investment strategies. •With cash and liquidity conservation as the primary focus, overseas acquisitions are likely to happen only if the price is right and investment structure palatable for investors.

EXHIBIT 6

Major Private and Public Investment Sales, Q4 2015 Sector

Site / Development

Private Investment Sales – Top 5 Transactions Commercial One Raffles Place Commercial Central Mall (Office Tower), Manulife Centre and Tampines Grande Commercial CPF Building Commercial One Raffles Place Industrial One @ Changi City Public Investment Sales - Top 3 GLS Site Residential with Commercial Alexandra View at 1st Storey (Parcel A) Residential Lorong Lew Lian Residential

Clementi Avenue 1

Estimated Price (SGD million)

Buyers

$1,145.8 mil $1,071.5 mil $550.0 mil $465.4 mil $420.0 mil

OUE Commercial REIT Golden Crest Holdings Pte Ltd (JV between CDL and Alpha Investment Partners) Ascendas Land (Singapore) Pte Ltd OUE Limited A-REIT

$376.9 mil

Tang Skyline Pte Ltd

$321.0 mil

Verwood Holdings Pte. Ltd., Intrepid Investments Pte. Ltd. and TID Residential Pte Ltd. Singland Homes Pte Ltd. and UOL Venture Investments Pte Ltd.

$302.1 mil

Source: URA, Knight Frank Research

19


AUCTION The year 2015 saw an increase in overall auction activities and such an upswing will continue in 2016, as more owners seek to divest their properties amid rising interest rates and soft leasing markets. Auctions presents a suitable avenue for buyers or investors to source for value buys as more properties are available for sale. Total sales value for 2016 is estimated to range between $120 million to $150 million.

Properties Put Up for Auction

Interbank Offered Rate (SIBOR), a weak leasing market and muted buying sentiment.

Surge in Number of Properties put up for Auction in 2015

The number of landed properties put up under mortgagee sale rose by a whopping 166.7% annually from 18 properties in 2014 to 48 properties in 2015, as opposed to the corresponding 33.0% increase for non-landed properties. This reflects rising strains in the market, such as the growing vulnerability of landed home owners to mortgage payment defaults due to the high value quantum of landed properties, as well as the rising need to encash the properties especially by business owners to tide through challenging business conditions.

While the total number of properties put up for auction dipped by 21.2% q-o-q to 175 units in Q4 2015, the number of properties put up for auction increased by 50.6% on a whole-year basis to 768 units in 2015. This marks the first time since 2009 that the total number of properties auctioned crossed the 750-unit mark (Exhibit 1). Owner sale continued to form the majority (i.e. 67.2%) of the properties being put up for auction in 2015. The total number of mortgagee listings increased by 45.3% to 215 units in 2015, representing more than a quarter of the total properties auctioned in the year.

Decade’s High Proportion of Residential Properties put up for Auction In 2015, the number of residential properties put up for auction reached 478 units, a substantial 62.0% annual increase. This translates to a record tenyear high in terms of the proportion of residential properties put up for auction. The number of residential properties under mortgagee sale also increased in tandem by 54.5% annually to 173 units in 2015. With property cooling measures in place and unlikely to be removed in the near term, more residential properties will be placed under mortgagee sale, as owners could find it increasingly difficult to service their loans amidst the hike in Singapore

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Properties Sold via Auction Total Sales Volume on the Upward Trend for Third Consecutive Year Total sales volume for 2015 increased for the third-year running, taking the number of transactions from 33 units sold in 2014 to 38 units in 2015. Out of the 38 transactions concluded, 65.8% of the properties were mortgagee sales. The overall success rate decreased from 6.5% in 2014 to 4.9% in 2015, as more buyers prefer to conclude the acquisitions via private treaty after auctions. However, the success rate for mortgagee sales only increased modestly from 11.5% (17 out of 148 properties sold) to 11.6% (25 out of 215 properties sold) in the same period. This can be attributed to the significant increase in mortgagee listings as lenders


Total Value of Sold Properties Increase In Tandem with Total Sales Volume In line with the annual growth of the number of properties auctioned and transaction value, the total sales value increased by a notable 41.1% to $102.3 million in 2015 (Exhibit 2). This is the first time the total value of sold properties crossed the $100-million hurdle since 2012, led by the residential sector which contributed 67.7% of the total sales value for the year. The most prominent transaction is a single-storey bungalow at Branksome Road (sold at $16.3 million). The Shops & Shophouses sector also contributed strongly to annual sales value - the $27.4 million of sales value is made up of 5 adjoining 2-storey refurbished shophouses at Teck Chye Terrace (sold at $14.63 million), 2 adjoining shop units at Figaro Street (sold at $6.45 million), and a shophouse at Tanjong Katong Road (sold at $6.35 million). With the shophouses at Teck Chye Terrace going under the hammer at a premium of 12.5% above its opening price, the auction market presents an attractive avenue for sellers who are keen to divest their shops or shophouses with potential profits to be reaped due in part to the higher visibility offered at auctions. Total mortgagee sales totalled $48.2 million, about 47.1% of the total sales value in 2015. This represents a 68.5% increase from 2014, during which $28.6 million worth of transactions were concluded.

Overall auction activities expected to rise in 2016, with Projected Total Sales Value to exceed $120 million

With the number of properties being put up for auction projected to increase, along with the perception that lenders and owners could start to set more realistic prices, the auction market is likely to receive greater attention as potential investors hunt for bargain buys during this opportune time. The full-year 2016 total sales value is projected to be in the range of $120 million to $150 million.

EXHIBIT 1

Total Number of Properties Put Up for Auction, by Property Type 900 800 700 600 500 400 300 200 100 0

2008

RESIDENTIAL

2009 OFFICE

2010 INDUSTRIAL

2011

2012

2013

2014

2015

HDB SHOPS

SHOPS & SHOPHOUSES


EXHIBIT 1

Total Auction Sales Value, by Property Type $250.0 $200.0 $150.0 $100.0 $50.0 $0.0

Outlook

lenders are likely to further moderate their price expectations in order to secure higher recoveries on their mortgage portfolios.

Transactional activity in the auctions market is projected to heighten in 2016 and the number of transacted properties is expected to cross the 50-unit mark. As the mortgage default situation could deteriorate amid higher interest rates,

No. of Properties Auctioned

Auction Sales Performance

place. With some 21,900 residential units slated for completion and a large influx of new industrial supply by end of 2016, these will contribute to a further deterioration of the currently weak leasing markets in residential and commercial segments. Coupled with uncertain macroeconomic conditions and rising interest rates, more owners are likely to face difficulties in servicing their mortgage loans, thereby prompting more mortgagee listings.

Value of Properties Sold ($ 'mil)

are increasingly looking to the auction market as a viable mode of sale.

SINGAPORE

2008

RESIDENTIAL

2009 OFFICE

2010 INDUSTRIAL

2011

2012

SHOPS & SHOPHOUSES

2013

2014

2015

HDB SHOPS


Short of an ideal price correction, the government will continue to keep the current property cooling measures in

21

SINGAPORE CONTACTS Senior Management Tan Tiong Cheng Executive Chairman 6228 6888 | [email protected] Danny Yeo Group Managing Director 6228 6808 | [email protected] Low Kin Hon Deputy Group Managing Director and Head, Valuation 6228 6860 | [email protected] Consultancy & Research Alice Tan Director and Head 6228 6833 | [email protected] Auction Sharon Lee Director and Head 6228 6891 | [email protected] Industrial Tan Boon Leong Executive Director and Head 6228 6894 | [email protected] Investment & Capital Markets Ian Loh Executive Director and Head 6228 6823 | [email protected] Office Calvin Yeo Executive Director and Head 6228 6887 | [email protected] Residential Tay Kah Poh Executive Director and Head 6228 7392 | [email protected] Retail Wendy Low Executive Director and Head 6228 7335 | [email protected] Valuation Png Poh Soon Director 6228 7393 | [email protected] Property Asset Management Peter See-Toh Managing Director, Asset Management 6848 5700 | [email protected] Foo Suan Peng Managing Director, Strata Management 6848 5648 | [email protected] KF Property Network Tan Tee Khoon Managing Director 6372 7308 | [email protected]

About Knight Frank Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank has more than 13,000 people operating from over 400 offices across 58 countries. These figures include Newmark Grubb Knight Frank in the Americas, and Douglas Elliman Fine Homes in the USA. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants.

Corporate Services Margaret Ang Executive Director and Head 6228 6835 | [email protected]

Knight Frank has a strong presence in Singapore with a head office and two subsidiaries; Knight Frank Property Asset Management and KF Property Network.

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Private View 2015

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