Real Estate Insights
Diverse demographics and 'the pizza ATM': how Singapore stacks up as a global city
Schroders Global Cities index rank: 27
- A centre for technology and research
- One of the easiest cities to conduct business in the world
- Global transportation hub
- Ageing population
- Tight low-skill labour immigration policies
- Challenges to the office, retail and industrial property markets
Why Singapore is a global city
In just half a century, the fortunes of Singapore have been transformed beyond recognition. In 1965, the newly created city state’s wealth was just a third of that enjoyed by the US. Today, based on gross domestic product (GDP) per capita, adjusted to reflect true purchasing power, Singapore is level-pegging with America.
The country also enjoys the third highest income per person in the world, the largest concentration of millionaires and one of the lowest unemployment rates – at 2.1%* – among developed countries.
Singapore’s success is due in part to its enviable location. It is a global transportation hub with an extensive network of trade agreements in Asia, especially for sea and air cargo. Its container ports in the south-west of the main island are the busiest in the world. The ports sit on 200 shipping lanes with links to 600 other ports in the world.
But Singapore’s success is about more than geography. A perfect base for Western businesses has been created, with low taxation and a strong culture of anti-corruption often cited as the key ingredients. The Index of Economic Freedom ranked Singapore as the second freest economy in the world in 2016 while the Corruption Perceptions Index 2015 ranked the country eighth.
Advanced infrastructure and an educated workforce have also played a part.
Singapore’s future as a technology hub
Traditionally a shipping port with an economy based on low-skilled workers, the country is now also trying to establish itself as a world centre of excellence for technology and research.
Last year the government announced plans to invest $19bn into science and technology over the next five years. Economic diversification is attractive to us as property investors. It means landlords aren’t reliant on one sector for tenants, keeping occupancy rates high. The scheme is already starting to attract R&D (research and development) investment from high-profile companies. British manufacturer Dyson, for example, has recently announced Singapore as the location for its £330m R&D centre.
It is possible to see hints of how innovation is replacing the low-skill economy on the streets of Singapore. We spotted a 'pizza ATM' during our recent visit.
Singapore’s real estate market
While we like Singapore as a city, the real estate market is facing challenges. The three largest property sectors - office, retail and industrial - all face prevailing headwinds.
We always like cities that have an under supply of real estate as this pushes up rents and, ultimately, returns. However, Singapore’s retail developments are facing over supply due to the $10bn of shops and malls that have been built in the last five years. Orchard Gateway and 268 Shopping Mall, both on the famous Orchard Road, Singapore’s Fifth Avenue, are examples of multi-floor centres that are springing up around the island.
Demand is falling too. Fewer wealthy tourists travel to Singapore from China to buy luxury goods after Beijing ordered a crackdown on corruption. China has also developed its own upmarket malls.
The office and industrial real estate markets are also being tested. As with shopping space, there is a glut of offices against a backdrop of slowing world economy that is taking its toll on Singapore. The economy grew by 1.8% in 2016, the slowest rate since 2009. It also means demand for industrial sites is weak. However, the slowdown in the oil and gas sector has impacted the industrial sector, and to a degree the office sector, meaning any pickup will have a positive impact.
Industrial rents are also affected by the changing landscape of the economy. The government’s push to encourage research-based companies includes policies aimed at keeping industrial rents low and affordable.
On our visit, some of the container ports were eerily quiet, offering an example of the slowing ‘old economy’.
We often say GDP is the 'drug' of real estate investors given it is heavily linked to real estate returns. Therefore Singapore’s latest figures along with the other challenges give us reason for caution.
* Source: Singapore Ministry of Manpower, as at September 2016
The sectors, regions and companies mentioned in this article are for illustrative purposes and not a recommendation to buy or sell.
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