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Singapore rents seen buffeted by global headwinds

Thursday 24 November 2011

DTZ Research downgrades forecasts for office, industrial segments

(SINGAPORE) Global headwinds are likely to dampen Singapore's rental market outlook, according to a report by DTZ Research.

Factoring in the growing turmoil and uncertainty in global financial markets, DTZ has downgraded its rental forecasts for the office and industrial segments in Singapore.

Says DTZ research analyst Ben Burston: 'Singapore has traditionally been a volatile office market, and our rental outlook has been impacted by the global slowdown, resulting in lower expected returns over the next five years.'

In addition, Singapore's heavy reliance on trade and finance makes rental rates in the office segment more susceptible to a global economic slowdown as demand tapers off.

DTZ has, therefore, cut annual rental growth forecasts by 3.8 per cent a year over the period of 2012 to 2016.

Rental forecasts for industrials have also been slashed by 3.1 per cent annually for the five-year period as Singapore, being a trade hub, is deemed to be 'at particular risk' of another recession.

That said, strong yields and steady rental growth within the industrial sector are likely to generate double-digit annual returns over the next five years, in Mr Burston's view.

Similarly, the local retail market is also expected to yield positive total returns over the next few years, although 'modest prospects for rental gains' and 'relatively low yields' might weigh slightly on overall sentiment.

In terms of ratings, DTZ has downgraded its view on Singapore offices from 'Hot' to 'Cold' but has retained its 'Hot' classification for both the industrial and retail segments.

Across the region, rental growth in the Asia-Pacific for all properties is expected to outpace the global rate of growth over the next five years.

Rentals across the region are expected to grow an average 3.2 per cent a year, surpassing the projected global all-property annual rental growth of 2.1 per cent over the same period.

Returns-wise, forecasts for the Asia-Pacific region are expected to be more in line with global levels, with the former at 8 per cent a year and the latter at 7.8 per cent a year.

'Averages for 2012 to 2016 are more similar as Asia-Pacific's outperformance in 2011 drops out of the figures,' Mr Burston explained.

Notably, the Asia-Pacific retail sector is expected to notch the best returns at 8.7 per cent a year, ahead of the office (8.1 per cent) and industrial (6.4 per cent) segments.

Source: The Business Times