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Office and hospitality markets kickstart journey to recovery
Hotels saw a “very strong growth” coming on the back of pent-up demand
Property experts said the shift of consumption from goods to services has given the two markets in Singapore a lift in 2022.
Over the last two years, the office and hospitality markets were severely impacted, but thanks to a shift of consumption from goods to services, these two sectors were finally able to turn the corner and kick start their journey to recovery.
“As Singapore’s economy and borders started to open and return to pre-pandemic normalcy, real estate sectors such as offices and hospitality that served the service industries saw higher investment demand and growth,” Wong Xian Yang, Head of Research of Cushman & Wakefield (C&W) Singapore, told Real Estate Asia in an exclusive interview.
Based on data from C&W, commercial investment volume surged to $7.2b in the second quarter (Q2), more than 2.5 times than the first quarter (Q1) 2022 figure. Meanwhile, data from JLL showed that as early as March 2022, investment volume in the mid-market hotel segment had already surpassed half of its full-year record in 2021, transacting a total of $103m.
Wong said investors grew more confident and invested large sums of money into offices as more people returned back to the office and with the belief that the role of offices may change.
The property expert added that the office market had already achieved its “new normal” considering the prevalence of hybrid work. Wong said occupancy in the market stands at around 50% to 60%, quite close to the pre-COVID normal of 60% to 70%.
Knight Frank’s Head of Research, Leonard Tay, echoed this saying the office sector has seen “incremental recovery” this year.
“Now that everyone’s allowed back into the office without restrictions, office users have revisited their earlier decision to reduce office space. In the current market, the challenge is to make the in-person office space more compelling such that the office will be a more conducive work location compared to the home,” Tay told Real Estate Asia.
End of the dark tunnel for the hospitality sector
Like the office market, the hospitality segment also won big from Singapore’s reopening. For the month of June, Wong said hotels saw a “very strong growth” coming on the back of pent-up demand.
Data from the Singapore Tourism Analytics Network showed that in June, Singapore hotels’ average room rate was at $238.32, up 63.1% yearon-year (YoY). In the same month, the average occupancy rate of hotels also jumped 22.6% YoY to 76.92%.
The hospitality market, however, is still playing catch up, according to Tay, given that borders just recently opened in April.
“It is challenging for them because they were in survival mode for the last two years. It takes new resources time to bring operational levels back to pre-pandemic occupancy levels, but at least they will have come to the end of a very dark tunnel now that travel is allowed,” Tay said.
Wong added that Singapore’s hospitality sector remains under pressure since Chinese tourists are a significant source of tourism for Singapore, and China is still under strict quarantine measures.
“From April to December 2022, the segment’s recovery will be from a very low base, but 2023 should be the year of the beginnings of normalisation,” said Tay.
Industrial sector takes the lead in recovery race
Whilst the office and hospitality markets are still in the beginning stages of their revival, the industrial sector is well on its way to the finish line of the race to recovery.
According to Tay, 2022 was the year where the industrial market recovered without serious disruptions, adding that real estate indicators remained relatively steady throughout the first half of the year, increasing incrementally to the tune of about 1% to 2% each quarter.
“We also saw certain recordbreaking levels of foreign asset investment in manufacturing in the last few years, notwithstanding the pandemic,” Tay added.
Wong said the industrial market is “stronger than it was pre-COVID [and is] beyond the road to recovery.”
