journo
31-10-22, 09:51
Singapore central region retail rents fell 0.4% in Q3, but a recovery is on the way
Oct 28, 2022
HIGHER inflation, labour shortages, and recession fears will continue to weigh on the retail market, but the industry appears to be on the mend, aided by a tight supply pipeline.
Retail rents in Singapore's central region have fallen for the third quarter in a row this year. According to figures released on Friday by the Urban Redevelopment Authority (URA), rents fell 0.4% quarter on quarter in Q3 2022, slightly better than the 0.5% drop in Q2 (Oct 28).
Retail space prices in the central region fell by 3.2 percent in Q3 after falling by 1.2 percent in Q2.
Nonetheless, analysts anticipate that both prime and downtown retail will recover this year and next as tourists return and meetings, incentives, conventions, and exhibitions (Mice) events and business travel resume.
"Retailers are being encouraged to open new locations or expand their existing footprints," said Leonard Tay, head of research at Knight Frank. According to him, approximately 2.2 million international tourist arrivals were recorded in Q3, up from 1.3 million in Q2.
"Other retail indicators continued to show further signs of recovery, in tandem with the substantial relaxation of safe management measures and border restrictions," Colliers' head of research Catherine He added.
After accounting for seasonal effects, retail sales (excluding motor vehicles) increased by 14% year on year in August 2022, continuing their positive trend since February 2021.
According to He, consumers have been incentivized to buy from brick-and-mortar stores for smaller purchases because e-commerce players charge higher delivery fees for smaller deliveries due to rising logistics costs.
Furthermore, she added, increased retail footfall and sales due to a shift in demand from goods to services, the removal of restrictions, and the resumption of events and atrium activities are likely to spur healthier leasing activity.
According to Tricia Song, CBRE's South-east Asia head of research, the retail market is largely two-tiered, with the overall market weighed down by the performance of secondary malls and corridors, while prime retail rents began a nascent recovery in Q3.
She stated that retailers are taking a long-term view and are confident in Singapore's retail market's eventual recovery, with events such as the Formula 1 Singapore Grand Prix and accompanying MICE events held in Q3 helping to boost retailer sentiment.
"While F&B operators were the primary drivers of demand, some local online fashion and athleisure retailers were pursuing omnichannel strategies," Song explained.
Though retailers are "understandably cautious" about committing to high rents in this bleak environment, Lam Chern Woon, Edmund Tie's head of research and consulting, has seen rental recovery in prime Orchard and suburban malls.
Meanwhile, falling retail rents and investor expectations of higher property yields in a rising interest rate and inflationary environment, as well as recessionary concerns, drove the drop in retail space prices, according to Angelia Phua, JLL's consulting director, research and consultancy, Singapore.
There was a total supply of 415,000 square metres (sq m) gross floor area of retail space from projects in the pipeline at the end of Q3 2022, compared to 438,000 sq m the previous quarter.
According to Colliers' He, average new retail supply in the next few years will be approximately 30% of the historical 10-year average, with limited supply for prime retail, lending support to a more meaningful improvement in rents and occupancies in the coming quarters.
The retail space stock increased by 10,000 sq m net lettable area (NLA) in Q3, compared to a 1,000 sq m increase in the previous quarter. The amount of occupied retail space increased by 30,000 sq m of NLA in the third quarter, compared to an increase of 8,000 sq m in the previous quarter.
The islandwide vacancy rate had dropped to 7.8 percent by the end of September, down from 8.2 percent at the end of June.
According to Edmund Tie's Lam, this is the lowest level recorded since the start of the pandemic in early 2020, and vacancy rates are gradually creeping closer to the pre-pandemic level of 7.5% recorded in Q4 2019.
"While vacancies in the Outside Central Region remained unchanged, vacancies in all other areas fell, with the Orchard Area recording the sharpest decline among the various subzones due to buoyant leasing demand," he said.
Significant events such as the 11.11 Sale, Black Friday, Christmas, and New Year's Eve are expected to drive retail spending in the fourth quarter. "Riding on the encouraging momentum toward a sustainable recovery, prime retail rents are on track to grow by the earlier projection of 2% to 4% for the entire year of 2022," said Tay of Knight Frank.
While headwinds may impede recovery, the retail market is expected to grow further, with the updated Retail Industry Transformation Map 2025 expected to spur retail innovation, according to Edmund Tie's Lam.
He anticipates that prime first-floor Orchard rents will lead the market recovery, with rental growth of around 10% this year, while other segments will see growth of 3% to 8%. Due to significant cost pressures and headwinds, he expects lower rental growth of between 8% and 9% for the former and between 3% and 6% for the latter in 2023.
Oct 28, 2022
HIGHER inflation, labour shortages, and recession fears will continue to weigh on the retail market, but the industry appears to be on the mend, aided by a tight supply pipeline.
Retail rents in Singapore's central region have fallen for the third quarter in a row this year. According to figures released on Friday by the Urban Redevelopment Authority (URA), rents fell 0.4% quarter on quarter in Q3 2022, slightly better than the 0.5% drop in Q2 (Oct 28).
Retail space prices in the central region fell by 3.2 percent in Q3 after falling by 1.2 percent in Q2.
Nonetheless, analysts anticipate that both prime and downtown retail will recover this year and next as tourists return and meetings, incentives, conventions, and exhibitions (Mice) events and business travel resume.
"Retailers are being encouraged to open new locations or expand their existing footprints," said Leonard Tay, head of research at Knight Frank. According to him, approximately 2.2 million international tourist arrivals were recorded in Q3, up from 1.3 million in Q2.
"Other retail indicators continued to show further signs of recovery, in tandem with the substantial relaxation of safe management measures and border restrictions," Colliers' head of research Catherine He added.
After accounting for seasonal effects, retail sales (excluding motor vehicles) increased by 14% year on year in August 2022, continuing their positive trend since February 2021.
According to He, consumers have been incentivized to buy from brick-and-mortar stores for smaller purchases because e-commerce players charge higher delivery fees for smaller deliveries due to rising logistics costs.
Furthermore, she added, increased retail footfall and sales due to a shift in demand from goods to services, the removal of restrictions, and the resumption of events and atrium activities are likely to spur healthier leasing activity.
According to Tricia Song, CBRE's South-east Asia head of research, the retail market is largely two-tiered, with the overall market weighed down by the performance of secondary malls and corridors, while prime retail rents began a nascent recovery in Q3.
She stated that retailers are taking a long-term view and are confident in Singapore's retail market's eventual recovery, with events such as the Formula 1 Singapore Grand Prix and accompanying MICE events held in Q3 helping to boost retailer sentiment.
"While F&B operators were the primary drivers of demand, some local online fashion and athleisure retailers were pursuing omnichannel strategies," Song explained.
Though retailers are "understandably cautious" about committing to high rents in this bleak environment, Lam Chern Woon, Edmund Tie's head of research and consulting, has seen rental recovery in prime Orchard and suburban malls.
Meanwhile, falling retail rents and investor expectations of higher property yields in a rising interest rate and inflationary environment, as well as recessionary concerns, drove the drop in retail space prices, according to Angelia Phua, JLL's consulting director, research and consultancy, Singapore.
There was a total supply of 415,000 square metres (sq m) gross floor area of retail space from projects in the pipeline at the end of Q3 2022, compared to 438,000 sq m the previous quarter.
According to Colliers' He, average new retail supply in the next few years will be approximately 30% of the historical 10-year average, with limited supply for prime retail, lending support to a more meaningful improvement in rents and occupancies in the coming quarters.
The retail space stock increased by 10,000 sq m net lettable area (NLA) in Q3, compared to a 1,000 sq m increase in the previous quarter. The amount of occupied retail space increased by 30,000 sq m of NLA in the third quarter, compared to an increase of 8,000 sq m in the previous quarter.
The islandwide vacancy rate had dropped to 7.8 percent by the end of September, down from 8.2 percent at the end of June.
According to Edmund Tie's Lam, this is the lowest level recorded since the start of the pandemic in early 2020, and vacancy rates are gradually creeping closer to the pre-pandemic level of 7.5% recorded in Q4 2019.
"While vacancies in the Outside Central Region remained unchanged, vacancies in all other areas fell, with the Orchard Area recording the sharpest decline among the various subzones due to buoyant leasing demand," he said.
Significant events such as the 11.11 Sale, Black Friday, Christmas, and New Year's Eve are expected to drive retail spending in the fourth quarter. "Riding on the encouraging momentum toward a sustainable recovery, prime retail rents are on track to grow by the earlier projection of 2% to 4% for the entire year of 2022," said Tay of Knight Frank.
While headwinds may impede recovery, the retail market is expected to grow further, with the updated Retail Industry Transformation Map 2025 expected to spur retail innovation, according to Edmund Tie's Lam.
He anticipates that prime first-floor Orchard rents will lead the market recovery, with rental growth of around 10% this year, while other segments will see growth of 3% to 8%. Due to significant cost pressures and headwinds, he expects lower rental growth of between 8% and 9% for the former and between 3% and 6% for the latter in 2023.