The coronavirus outbreak may cut short a recovery that the property market here has just started to flag.
Both the retail and industrial property markets showed signs of bottoming in the second half of 2019 and will likely continue to stabilise throughout this year, said Colliers International.
However, any recovery will likely be marginal as downside risks persist, particularly for the retail segment which remains vulnerable to fragile consumer sentiment, the real estate consultant warned.
A decline in overall retail sales last year suggests the virus outbreak can dampen consumer sentiment, it added.
The deadly outbreak, with its epicentre in Wuhan, China, has disrupted global supply chains and has left shopping malls, entertainment and tourism venues deserted across much of Asia.
The disruption is likely to cut economic growth across the world, with Asian economies taking the major brunt.
Ms Tricia Song, Colliers head of research for Singapore, said: "The situation is evolving and no one really knows how this will turn out at this point. The outbreak could be the proverbial black swan that will hurt the retail sector."
Still, she expects rents to stabilise and recover gradually as the new supply pipeline eases over the 2020-2024 period.
Colliers believes a rise in Orchard Road prime rents is likely to lead to a gradual recovery.
The rejuvenation plans for the shopping precinct announced by the Government last year as well as post-epidemic recovery in visitor arrivals and tourism receipts may potentially boost real estate demand in the area.
Despite the completion of large projects, retail vacancy across Singapore improved by 7.5 per cent by the end of last year.
The vacancy improvement was driven by higher net absorption amid the good take-up at Jewel at Changi Airport, Funan and Paya Lebar Quarter malls.
As the market continues to digest the increase in retail space, Colliers expects new supply to ease significantly and stay tight this year and throughout the 2020-2024 period.
While retail property transactions hit a decade high last year, investment volumes contracted 6.7 per cent in the second half of the year from the previous six months.
Transactions that surged 204 per cent to $4.1 billion last year - driven by keen investor interest and mergers and acquisitions (M&As) - included The Star Vista, Duo Galleria, Liang Court, Chinatown Point and Rivervale Mall.
M&As were led by 313@somerset's injection into Lendlease Global Commercial Reit.
The merger of OUE Hospitality Trust and OUE Commercial Trust priced Mandarin Gallery at $3,908 per sq ft.
Low interest rates, limited new supply and bottoming rents may keep the market conducive for deals over the next few years, Ms Song noted.
For the industrial property market, Colliers' data showed declines in average monthly gross rents of factories and warehouse and logistics space last year. In contrast, rents at business parks and independent high-spec space increased over the same period.
Mr Dominic Peters, Colliers senior director of industrial services, said: "The coronavirus outbreak could hit manufacturers with disruption to the global supply chain in the near term.
"Coupled with ample new stock, factory rents would likely remain under pressure."
Meanwhile, centrally located business parks and high-spec buildings with good amenities should continue to attract healthy demand while those older and farther away from MRT stations or in suburban areas could face more pressure, he added.
Colliers expects capital values of prime industrial properties with freehold or long land tenures of 60 years and above to see a marginal uptick in the next few years due to such properties' scarcity.
Net yields for industrial properties with short leaseholds of 30 years and below remained flat throughout last year at 5.75 to 6.25 per cent, and Colliers estimates that this stable trend should hold over the next five years.