A Better-than-expected Performance Compared to the 3-5 Per Cent Decline Projection at the Beginning of the Year

International property consultant, Colliers International’s latest quarterly research report on the retail sector revealed that rents of prime retail space in Orchard Road fall by 2.1 per cent year on year (YoY).  Nonetheless, the YoY decline was a better-than-expected performance compared to the 3-5 per cent decline projected at the beginning of the year.   

Meanwhile, rents of prime retail space in the Regional Centres reflected a slight increase of 0.1 per cent for the entire year.  

Mr Calvin Yeo (杨光伟), Deputy Managing Director of Colliers International, says, “2013 was a year when the retail property sector enjoyed the impetus of new stores set up, as well as expansion into new and existing malls the moment space becomes available.  

Hence, rents of prime retail space in Orchard Road were still kept fairly resilient by such interest from local entrepreneurs and international brands to expand or to open new stores and F&B outlets.  This is despite the increasing prominence of sub-urban malls, as well as cautious consumer sentiments throughout the year.” 

On a quarter-on-quarter (QoQ) basis, the monthly gross rents of prime ground floor retail space in Orchard Road rose by a marginal 0.2 per cent from 3Q 2013 to S$36.46 per sq ft in 4Q 2013.  Meanwhile, monthly gross rents for similar space in the Regional Centres remained unchanged at S$33.46 per sq ft.  

The last quarter of the year continued to see the retail sector abuzz with new store and mall openings – including a plethora of new-to-Singapore retailers and F&B operators in Bedok Mall in the east and Westgate in the west, both of which opened in early December. 

At the same time, other retailers also continued to set up shop at existing malls.  

One notable opening in 4Q 2013 was department store, Robinsons Orchard, which opened at The Heeren along Orchard Road.  Spanning 186,000 sq ft across six storeys, more than 380 new brands have been brought into Singapore’s retail scene, of which 280 are exclusive to Robinsons Orchard.  

It was observed that the rental premium that prime retail space in Orchard Road commanded over similar space in the Regional Centres has continually narrowed from 31 per cent in 2007 to only 9 per cent as of the end of 2013 – reflecting heightened competition for tenants between the two micro-markets. 

Mr Yeo comments, “The narrowing of rental gap between Orchard Road and the Regional Centres is an indication that retail activities are spreading out from Orchard Road to various locations across the island.  

While the malls in Orchard Road still cater to the tourist crowd, and to locals to shop for a unique product or service, or to dine for a special occasion, retailers also see the potential in sub-urban malls in pulling in pedestrian traffic and crowd.   As such, we see that some retailers have recently opted to also set up shop in sub-urban malls, such as Kate Spade Saturday and Armani Exchange in Westgate, and Sembonia in Bedok Mall.”  

Over at the sales market, prime strata-titled retail space in Orchard Road and the Regional Centres enjoyed YoY price increases of 5.1 per cent and 9.2 per cent, respectively. 

However, it was noted that the annual price increases were mainly due to the robust sales momentum and price increases registered in 1H 2013.  2H 2013, on the other hand, witnessed a substantial drop in sales activity due to the imposition of the Total Debt Servicing Ratio (TDSR) announced in late June 2013.  

Consequently, the average capital values for prime ground floor strata-titled retail space in both Orchard Road and the Regional Centres in 4Q 2013 continued to stay flat at S$6,942 per sq ft and S$4,447 per sq ft, respectively, after remaining unchanged in 3Q 2013. 

Looking forward in 2014, retail sales should perform better with improving external conditions contributing to a steadily growing domestic economy, a low unemployment climate, continual increase in visitor arrivals and an increasing variety of new retail concepts in more locations.  

This will promote an environment where retailers and F&B operators will be confident in Singapore’s retail sector – leading to further expansion and new set-ups.  Nonetheless, the challenges of productivity issues and manpower, as well as a high-operating cost environment, remain. 

Additionally, the upcoming completion of some 2.5 million sq ft of retail space in 2014 is also expected to place a lid on rental growth. 

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory, comments, “With an estimated 420,000 sq ft of retail space projected to be completed in Orchard Road – notably that of Orchard Gateway and the refurbishment of Shaw House, rents of prime ground floor retail space in Orchard Road are forecast to remain relatively stable within a range of -1 to 2 per cent in 2014.

The remaining bulk of new supply will be distributed across the fringe and sub-urban areas.  Given the residential population catchment and regular pedestrian footfalls that malls in the Regional Centres and sub-urban areas enjoy, prime ground-floor rents in the good quality malls in the Regional Centres could enjoy a slightly better rental growth of 1 to 3 per cent in 2014.” 

Meanwhile, investor demand for shop and F&B space in the strata-titled retail market (including mixed-use developments) is likely to remain weak, as a continued result of the TDSR.   

Ms Chia concludes, “Given that the average imputed capital value of prime ground floor strata-titled retail units in Orchard Road and Regional Centres had increased by 5.1 per cent and 9.2 per cent, respectively, in 2013, the outlook for 2014 appears to be muted – with both micro-markets expected to remain generally flat for the entire year.”