2015-04-13

Non-mall Retail Spaces Expected to Feature More Prominently in Singapore’s Retail Landscape

The latest quarterly report on the retail property sector by Colliers International revealed that rents and capital values were kept depressed in 1Q 2015 – due to the challenging retail landscape, arising from the double whammy of a tight labour market and declining retail sales.

Rents

In 1Q 2015, the average monthly gross rents for prime ground floor retail space at Singapore’s premier shopping belt, Orchard Road, fell further by 0.9 per cent quarter-on-quarter (QoQ) to S$35.83 per sq ft, after slipping by a marginal 0.2 per cent QoQ in the preceding quarter.

Retailers, and food and beverage (F&B) operators on Orchard Road are becoming increasingly cautious towards expansion plans, as well as developing an unrelenting resistance towards rental increases – due to rising operating costs, disappointing visitor arrivals and weak retail sales. 

In contrast, supported by a ready pool of population catchment in the sub-urban locations, the average monthly gross rents of retail space in the Regional Centres continued to nudge up slightly by 0.3 per cent QoQ to S$33.94 per sq ft in 1Q 2015. 

Consequently, the rental premium that prime retail space in Orchard Road commands over similar space in the Regional Centres further narrowed from 6.9 per cent as of 4Q 2014 to 5.6 per cent in 1Q 2015. 

In spite of the cautious sentiment and tenants’ resistance towards rental hike, the overall activity in the leasing market remained fairly stable during the quarter – underpinned by the arrival of international brands – such as Scotch & Soda, Fresh, Pretty Ballerinas and Gieves & Hawkes – that set up their first stores here in Singapore, as Singapore is a major regional centre.

Meanwhile, the F&B scene continued to be abuzz with activities, with new restaurants and eateries opening both in conventional malls and non-mall locations – such as shophouses, commercial spaces within HDB estates and the ancillary retail space of commercial buildings.

Capital Values

The strata-titled retail sales market was muted in 1Q 2015, as the impact of the Total Debt Servicing Ratio (TDSR) becomes more pronounced.  Only 44 caveats were lodged for strata-titled retail properties in the first 12 weeks of 2015, reflecting a significant decline of 44.3 per cent in transaction volume from that recorded in 4Q 2014. 

On the back of declining transaction volume, alongside waning investor interest, the average capital values for prime Orchard Road strata-titled retail space dipped by 2 per cent QoQ to S$6,803 per sq ft in 1Q 2015 – after staying unchanged for 7 quarters since 2Q 2013.

Meanwhile, the average capital values for prime retail space in the Regional Centres stayed unchanged at S$4,491 per sq ft.

Outlook

The retail property market can expect an injection of some 1.4 million sq ft of new space this year; of which, 72.9 per cent are in non-central locations – including Waterway Point at Punggol Central/Punggol Walk, Downtown East on Pasir Ris Close and The Promenade@Pelikat on Jalan Pelikat.

Mr Yeo comments, “The new supply of retail space in these sub-urban locations is expected to be easily absorbed – given that they are spread across different parts of the island and supported by a ready resident population catchment.” 

Against this backdrop, rents for prime retail space in the Regional Centres are expected to sustain better than those in Orchard Road. 

Prime ground floor retail space in the Regional Centres is forecast to enjoy rental growth of up to 2 per cent, while that in Orchard Road is projected to move laterally between -1 per cent and 1 per cent for the rest of 2015.

On the strata-titled retail sales front, transaction volume is expected to stay thin for the rest of the year, as factors, such as TDSR, loan-to-value regulations and impending interest rate hikes, will continue to weigh on purchasers’ decision making process.

The average capital values of prime strata-titled retail space in Orchard Road are expected to ease by up to five per cent.  Meanwhile, the average capital values of prime strata-titled retail space in Regional Centres might remain flat for the rest of the year, as owners are likely to maintain their price expectations, supported by healthy leasing demand.