The US-China trade tension is escalating. China will impose tariffs on US$60 billion (S$82.3 billion) worth of US goods as retaliation for the new 10 per cent tariff that the United States announced on US$200 billion worth of Chinese goods.
Investment confidence and regional currencies have taken a beating since the trade tension started in March this year. Most ASEAN currencies have also fallen against the US dollar as emerging markets’ aversion to risk increases. However, the extent of the market rout is far below the volatility levels seen in previous crises such as the global financial crisis, Eurozone crisis and Brexit.
Despite rumblings of a trade war, real estate investments in the Asia Pacific have remained on track for another banner year with overall volumes in the first half of 2018 reaching US$360 billion – the highest ever for the same period. Economic growth in the region, projected at well over 5%, remains the best prospect globally ahead of US and Europe.
In the case of Singapore, the escalation of the US-China trade war will have a mixed impact on Singapore’s commercial activity. On one hand, suppliers of intermediate components to China will likely see reduced demand for their goods. If trade through our port slows down, the industrial properties near the port will start to feel the impact, as headwinds in the global trade will lead to weaker occupier demand, especially from trade-related clusters such as manufacturing, wholesale trade, transport and storage.
On the other hand, Trump’s imposition of tariffs on Chinese exports may prompt Chinese companies to shift some of their manufacturing base to Southeast Asia. While the low-cost production lines are expected to move to destinations such as Vietnam and Thailand, high-tech manufacturing activity could conceivably make its way to Singapore to tap on its pool of skilled workers and developed infrastructure.
On the commercial real estate front, as more of such Chinese companies move their manufacturing bases to cheaper alternatives in Southeast Asia, they are still likely to keep their regional headquarter functions in Singapore given the republic’s status as a favoured location for finance and business, together with the city state’s competitive edge over other ASEAN countries.
Based on Cushman & Wakefield’s estimates, the space occupied by companies that are possibly hit by higher tariffs, such as automotive, chemicals, consumer goods, electronics and metals & minerals, only account for approximately 7% of the 28 million square feet of total office stock in the Central Business District. In addition, not all of these companies have manufacturing operations in China. As such, the impacted proportion is likely to be significantly less than 7%.
Certainly, if the trade tension were to develop into a full-scale trade war, it will have a more devastating impact on both the US and China, hurting global confidence and derail economic outlook in both countries. We are already seeing capital outflows from the emerging markets in Southeast Asia subjecting the currencies of these nations to some pressure. Singapore being a trade-dependent and open economy, will not be spared of any financial market turbulence and curtailed investment. This scenario is currently not on the cards, even as the two countries continue to exchange threats.
Nevertheless, the long-term growth prospects of the Southeast Asian region remain intact, driven by the rise of the middle class, which is expected to more than double in size by 2030, from 2015 levels. Singapore will continue to support the region’s development and will benefit from its strategic location in a region with promising growth potential.
Note: This story originally appeared in The Straits Times on September 30, 2018 under the title “Sino-US row: Commercial real estate fundamentals sound”.
Christine Li is the Senior Director and Head of Research for Singapore at Cushman & Wakefield.
Lai Wyai Kay is the Associate Director of Research for Asia Pacific at Cushman & Wakefield.