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As governments across the world begin to ramp up their vaccination plans, travel will return. We do anticipate some caution in the near term as borders reopen and the mechanism to facilitate mass travel is formalised.

While there will be changes and more emphasis on factors such as hygiene, our inherent wanderlust, relatively cheap cost of travel and pent-up demand will drive our prediction of a V-shaped recovery for the sector over the next three to four years.

In Colliers Hotel Insights | Q1 2021, we look at:

• The outlook for hotels in Asia Pacific in 2021
• Hotel market in Melbourne, Australia
• Hotel market in Singapore
• An update on the casino gaming sector

Logistics warehouses and hi-specs space to be bright spots

Singapore’s industrial property market was relatively resilient in 2020 with the JTC rental and price index declining 1.5% YOY and 2.7% YOY, respectively. Q4 2020 witnessed a recovery, which could continue into 2021, as the economy rebounds. We forecast warehouse rents to rise 1.3% YOY, while factory rents could stay flat on ample supply.

Demand for business park and hi-spec spaces should be supported by the thriving technology sector and biomedical manufacturing. Overall occupancy improved 0.7 ppt in 2020 to 89.9%, driven by warehouses on increased stockpiling and e-commerce activities. We recommend landlords adopt Industry 4.0 and remodel 

Retail property market expected to stabilize and recover gradually after COVID-19

Average Orchard Road and Regional Centre rents declined 2.5% in H2 2020, bringing the full year decline to 7.2% as net absorption hit a record low. We expect demand in 2021 to turn positive as the economy reopens.

Retail transactions fell 29.5% YOY in 2020, while capital values declined 5% given disrupted income. We expect capital values to remain flat in 2021.

Download Colliers’ bi-annual report on the retail sector in Singapore for H2 2020, as we analyse the latest trends and market outlook, with expert recommendations for retailers, landlords and investors.

Industrial market sees recovery

Industrial activity was observed to be relatively robust as strata sales and vacancy rates improve gradually but uncertainties remain.

In Q4/2020, the economy contracted by 2.4% YoY, moderating from the 5.8% contraction in Q3/2020. This was largely attributed to the 10.3% YoY expansion in the manufacturing sector, extending the 11% growth in Q3. The growth was led by output expansion in the electronics, biomedical manufacturing, precision engineering and chemicals cluster. Nevertheless, the COVID-19 pandemic still took a toll with Singapore’s economy contracting by 5.4% in 2020, a reversal from the 1.3% expansion in 2019. However, the manufacturing sector posted growth of 7.3%, in contrast to the 1.5% contraction in 2019. This was supported by expansion in the biomedical manufacturing, electronics and precision engineering clusters, arising from strong demand for pharmaceutical products, semiconductors and semiconductor manufacturing equipment respectively. With the pickup in manufacturing demand following the reopening of the economy, the manufacturing sector ended on a positive note in 2020. In December, the overall Purchasing Manager’s Index (PMI) remained in expansionary mode for a sixth straight month. Similarly, manufacturing output grew by 14.3% YoY in December, bringing overall growth to 7.3% in 2020. The expansion in December was supported by the electronics, chemicals and precision engineering. On the other hand, after an increase of 6.5% in Q3/2020, non-oil domestic exports (NODX) recorded a 0.5% YoY decline in Q4/2020. Nevertheless, NODX expanded by 4.3% in 2020, a reversal from the 9.2% drop in 2019. Despite global economic uncertainties, the overall growth in 2020 was led by increased shipments of electronics and non-electronics products.

Whilst the consumption tax hike enacted in October created some unease during the final months of 2019, there was plenty of encouragement heading into the new decade. Indeed, with the Tokyo Olympics on the horizon, property sectors exposed to inbound tourism were particularly upbeat. All the while, the relative stability of Japan’s political and economic landscape continued to appeal to investors. This optimism quickly faded amid the onset of COVID-19, however, and one of Japan’s longest post-war economic expansions was stopped in its tracks. Whilst the country has managed the virus relatively well, a somewhat long road to recovery is expected given its modest potential GDP growth rate. 

As for sector performance, the suspension of international travel has completely reversed the fortunes of the previously encouraging retail and hospitality sectors. In contrast, the structural changes brought on by the proliferation of e-commerce has thrust the logistics sector into the spotlight. Both the residential and office sectors, meanwhile, are going through some significant changes, and these varying reactions to the pandemic are also echoed in the J-REIT markets. Specifically, a recent correction in logistics-focused J-REITs notwithstanding, likely in response to the sector overheating, premiums remain significantly higher than its peers. Concurrently, the stark contrast between hard assets and listed vehicles, may reflect different views on sector prospects or give arbitrage opportunities to shrewd investors.

Flexible workspaces in India grew at a CAGR of 38% from 2017 to 2019, with many local and global operators entering the space, led by increasedFlexible workspaces in India grew at a CAGR of 38% from 2017 to 2019, with many local and global operators entering the space, led by increaseddemand from corporate occupiers or enterprise clients. As of end-February 2021, the total flexible workspace stock stood at 30 million squarefeet (2.8 million square meters), across the top six Indian cities. Due to muted demand amid uncertain conditions, 2020 saw flexible workspaceoperators lease 2.9 million square feet (269,000 square meters) of space, down by 75.8% from 2019. This was about 8.5% of the total leasingrecorded across the top six cities. Bengaluru, Hyderabad and Mumbai accounted for the bulk of transactions as some operators expanded theirfootprints, mainly in decentralized locations. Further, deals totalling around 1.7 million square feet (158,000 square meters), which were precommittedor in the final stages, were cancelled across the top six cities.

As of March 2021, about 65% of the desks on offer are leased, across the top flexible workspace operators’ portfolios. Though the bulk of thisspace is occupied by established corporates as opposed to freelancers or start-ups, and we think there is still scope for enterprise clients to takeupmore flexible workspace as operators are offering attractive prices for large or multi-location deals. The leasing period is currently about oneto two years as firms look at flexible workspaces as a temporary solution to accommodate their workforce until they finalize their expansion andfootprints beyond 2023.

In their latest outlook report for 2021, Colliers estimates that institutional investments in Indian real estate will grow by 14.6% to INR 396 billion (USD 5.5 billion) from INR346 billion (USD4.8 billion) in 2020. For comparison, 2020 had witnessed a drop of 23% from 2019. Colliers believes that institutional investors continue to be bullish on Indian real estate asset classes such as offices, data centers and warehouses and they are looking to deploy their existing dry powder.

“The investment climate in India is very buoyant with global investors’ interest in real assets getting stronger. With global interest rates at historic lows and positive net yields in India, the country has emerged among the preferred destinations for investments in real estate. Further, the resilience of the Indian market is also evident from continued good housing sales performance across various markets, the large institutional investments in commercial office and industrial parks, and the listing of two REITs in the past six months.”