Investment Spotlight on Singapore: Opportunities in A Rising Interest Rate and Inflationary Environment

Based on economic indicators, Singapore’s economy is on a strong footing for the first half of 2022. Most industries have surpassed pre-covid levels, while some are moving towards full recovery. This is reflected by strong gross domestic product (GDP) growth which grew by 4.4% in the second quarter and is expected to stabilise at around 3.8% for 2022 which would be higher than pre-pandemic growth rates of around 3.2%. 

Though the labour market is tight driving unemployment back to pre-pandemic levels, trade levels grew by 12.4% year-on-year in May and is poised to stay firm in 2022 despite risks, driven by recovering demand in Asia.

However, downside risks are emerging with inflation at decade highs driven by resurgent demand and supply chain disruptions. This has fueled a rise in interest rates by many central banks to keep inflation under control. As such, economic growth is expected to slow in the second half of 2022 and 2023.

That said, Singapore is still in a position of strength to navigate the coming turbulent environment with strong capital inflows into the real estate market, supporting capital values. A tight supply situation would underpin rental growth even if demand falters.

Market Performance on a Sectorial Basis

Amidst Singapore’s reopening, there is broad based recovery across all sectors with an increasing demand while supply remains tight.

Market Snapshot: Broad Based Recovery

Source: Cushman & Wakefield Research
* Ground Floor
** Estimated

Investment Sales

With strong growth prospects and market liquidity, institutional investors are actively entering the Singapore market, with the likes of AEW Capital Management buying a decentralised office tower and US-based private equity group, KKR, acquiring Twenty Anson in the CBD.

Commercial investments have dominated in the first half of 2022, with total commercial investment sales reaching close to $10 billion, driven by a slew of large office deals in the CBD and in decentralised markets. As the global economy gets increasingly volatile, there is a flight to safety as investors look to assets which can deliver stable income, value-add or opportunistic plays to boost returns and leverage on government schemes which encourage redevelopment into mixed-uses. 

Following the commercial market, the residential market remains relatively resilient and is poised to exceed 2021 levels. As unsold developer inventory remains very low, developers are competitively acquiring land despite the uptrend in pricing. 

The industrial market remains highly sought after though the total transaction volume does not reflect any dominance due to its lower prices. This is also a function of average shorter leases for industrial properties with very limited institutional-grade industrial assets for sale. 

The prevailing mega trends on e-commerce, digitalisation of businesses, and increased focus on life science will drive industrial demand and rents, resulting in a positive long-term outlook. 

Rising Deal Momentum in a Flight to Safety

Source: Cushman & Wakefield Research
* Deals of at least 10 million
** Exclude related party transactions, properties transfer due to merger 

Mega Trends and Opportunities

While rising interest rates and inflation will shape real estate trends over short to mid-term, investors should align their portfolio according to longer term mega trends to capture the first-mover advantage and reap extraordinary returns. 

Here are some mega trends and opportunities that we see happening over the next decade.