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Rated Singapore REITs: The Best Assets Will Withstand Demand Softening

SINGAPORE (S&P Global Ratings) Jan. 27, 2023--Leasing conditions for Singapore REITs will soften in 2023. That is our view on the back of property data for the fourth quarter of 2022 that the government released today.

Vacancy rates should remain steady for our rated Singapore REITs, given the quality of their assets.

"We expect rental growth momentum to slow generally, particularly for office leases," said S&P Global Ratings credit analyst Hwee Yee Ong.

This comes after a strong 2022 for the office sector, with prime rents up 6.5% and vacancy rate down 2.5 percentage points (ppts) year on year.

Conditions are now weakening. Our economists recently forecast that Singapore's GDP growth will slow to 2.3% in 2023, from 3.6% in 2022. The retail sector will be relatively healthy, underpinned by a post-pandemic rebound in consumption and tourism, and tight supply.


Macroeconomic softening could temper business confidence this year, weighing on office demand. Firms may cut their real estate footprint or hold off on leasing decisions, particularly as hybrid work practices remain common.

Technology firms globally are entering a phase of heavy retrenchments. Singapore has not been not spared. Over 1,000 employees in the Singapore technology sector were made redundant from July to mid-November 2022, according to the Minister for Manpower, Tan See Leng. This is almost five times the number of retrenchments during the first half of 2022.

Waning leasing demand from the technology sector weighs on the office sector. Technology firms have been one of the key drivers of leasing demand in recent years. As the entities give up or sublet offices, shadow space (floor area that is leased but not utilized) could increase.

More leasing options stemming from elevated supply in 2023 could shift bargaining power to tenants. Additions to office space in 2023 will be around 80% higher than the average annual additions over the past five years. The completion of IOI Properties' Central Boulevard Towers in the second half of 2023 will add much capacity, in particular.

"It is not all gloom for the Singapore office sector. A flight-to-quality trend benefits prime offices," said Ms. Ong. "Other sectors, such as nonbank financial institutions, professional services, and flexible-space operators may absorb some of the space that is becoming available."

Companies are demanding flexibility in their leases while economic conditions stay uncertain. This may spur an expansion in flexible space, similar to what we saw in the mid-to-late 2010s. Several landlords have partnered with or leased space to flexible-space operators to ramp up such offerings. For instance, CapitaLand Integrated Commercial Trust has such arrangements with flexible-space operators--The Work Project, and WeWork Cos. LLC.


Favorable supply-demand dynamics mitigate challenges stemming from softening in the broader economy. Consumption growth and limited supply underpin continued stable performance in the retail sector.

"A post-pandemic boom in inbound tourism will bolster retailers' confidence across downtown malls," said Ms. Ong.

The Singapore Tourism Board forecasts international visitor arrivals to reach around 12 million-14 million in 2023. This is about 60%-75% of 2019's arrivals, but about double that of 2022.

We expect suburban malls to remain relatively resilient. Their high exposure to nondiscretionary spending and proximity to residential hubs should continue to add stability.

The limited pipeline for shopping malls supports a healthy vacancy rate and rental growth. Supply over the next three years will be below the annual average over the past five years. Any new capacity will largely center on retail space in mixed developments. The presence of a local catchment in such developments mitigates leasing risk. The retail components can draw customers from the nearby residential and/or office components.

Inflation and slowing growth may strain retailers. They may not be able to absorb rent hikes alongside rising costs and uncertain consumer sentiment.

On Jan. 27, 2023, the Urban Redevelopment Authority published its real estate statistics for the fourth quarter of 2022. The urban planning authority of Singapore announced these details:


  • Median rentals (based on contract date) for Category 1 (a proxy for prime offices) increased by 6.5% year on year to Singapore dollar (S$) 10.75 per square foot per month (psf pm). This is 2.0% higher than pre-pandemic levels (that is, the fourth quarter of 2019).
  • Vacancy rate fell by 2.5 ppts year on year to 9.5%. This is 1.8 ppts higher than pre-pandemic levels.


  • Median rentals (based on the contract date) for Central Area--Orchard Road (a proxy for downtown malls) decreased by 6.8% year on year to S$7.99 psf pm. This is 20.7% lower than pre-pandemic levels.
  • Vacancy rate fell by 1.5 ppts year on year to 9.8%. This is 1.8 ppts higher than pre-pandemic levels.
  • Median rentals (based on contract date) for Outside Central Area (a proxy for suburban malls) decreased by 2.9% year on year to S$4.61 psf pm. This is 13.8% lower than pre-pandemic levels.
  • Vacancy rate reduced by 0.6 ppts year on year to 5.5%. This is 1.6 ppts lower than pre-pandemic levels.

Editor: Jasper Moiseiwitsch

Related Research

This report does not constitute a rating action.

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Primary Credit Analyst:Hwee Yee Ong, CFA, Singapore +65 6597-6193;
Secondary Contact:Simon Wong, Singapore (65) 6239-6336;

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