A Consistent Momentum of New Openings and Entrants in Both Orchard Road and Sub-urban Malls

International property consultant, Colliers International’s latest quarterly research revealed that rents of prime retail space in Orchard Road and the Regional Centres fell marginally in 1Q 2013. 

The slight decline is a result of retailers’ resistance to rental increases amid growing cautious consumer sentiment and the increasingly-critical labour situation in the retail sector. 

Leasing Market

As of the end of March 2013, the monthly prime ground floor gross rents in Orchard Road fell by 1.3 per cent from the previous quarter to S$36.75 per sq ft. 

In the Regional Centres, the average monthly gross rent of prime space fell by 0.1 per cent from 4Q 2012 to S$33.88 per sq ft. 

Given that the Regional Centres have established a firm presence among its residential catchment population, coupled with increased competition among Orchard Road malls, the rental premium that prime retail space in Orchard Road commands over similar space in the Regional Centres narrowed further from 11.5 per cent as of end-2012 to 10.1 per cent in 1Q 2013. 

Mr Calvin Yeo (杨光伟), Deputy Managing Director, Client and Retail Services, says, “Despite the cautious consumer sentiments, the leasing market continued to enjoy a consistent momentum of new openings and entrants of both shop and food and beverage (F&B) outlets in 1Q 2013. 

Overall vacancy rates remained low with many of the popular Orchard Road and sub-urban malls being able to replace outgoing tenants.  It was observed that although trading conditions are challenging, various retailers are still keen to attempt new concepts, as well as to embark on expansion plans in locations where they do not have a presence.”

For instance, in 1Q 2013, the luxury watch house, Philip Stein, as well as the American furniture and household chain, Crate & Barrel, opened their first Singapore outlets in ION Orchard. 

Over in the sub-urban malls, French label, Agnes b., opened its first outlet store at IMM.  F&B outlets also made their debut at retail malls, such as the Hong Kong dim sum chain, Tim Ho Wan, which opened its first overseas outpost in the new atrium wing of Plaza Singapura. 

Mr Yeo continues, “Going forward, we expect heightened competition among shopping malls for tenants, as well as among retailers for preferred vibrant locations to compete for the consumer dollar.  Such competition would result in older malls facing pressure to re-invent, so as to stay relevant and prevent increasing vacancies and falling rents.”

For instance, Shaw Centre located in Orchard Road will undergo its largest transformation in almost 30 years, repositioning itself as a contemporary shopping mall, while Eastpoint Mall, the main sub-urban shopping centre of Simei house estate for the past 16 years, has commenced a major makeover. 

Sales Market

The strata-titled retail sales market in 1Q 2013 was buoyed by robust demand. With new property measures announced by the Government in January 2013, affecting both the residential and industrial sectors, a significant amount of investor interest shifted towards the commercial sector, including shop space.

Given that retail tenants regularly face rental revisions, coupled with limited existing stock and a low frequency of new launches of strata-titled retail space, there was mounting interest, mainly from investors, as well as from end users.   

A significant strata-titled retail launch in 1Q 2013 was Alexandra Central, a 99-year leasehold hotel and retail development at the junction of Alexandra Road and Jalan Bukit Merah.  All but 2 of the 116 units were sold by the end of the first day, with units on the first level fetching more than S$7,000 per sq ft, while those on the second and third floors were marketed at about S$5,600 per sq ft and S$4,400 to S$4,800 per sq ft, respectively. 

Similarly, towards the end of March, all 93 retail units in Pavilion Square, a mixed development in Geylang Road, were snapped up in one day, with prices ranging from S$2,000 per sq ft to a whopping S$10,879 per sq ft.  The top price that was achieved for a 118-sq-ft unit on the ground floor is a record for a retail unit outside the city and the Orchard Road shopping belt. 

Underpinned by strong demand, capital values of retail space increased during the first quarter of the year. 

In 1Q 2013, the average capital values for prime strata-titled retail space in Orchard Road rose by 3 per cent quarter-on-quarter (QoQ) from S$6,608 per sq ft in 4Q 2012 to S$6,806 per sq ft. 

Meanwhile, the average capital values for similar space in the Regional Centres improved by 5 per cent QoQ from S$4,072 per sq ft in 4Q 2012 to S$4,276 per sq ft. 

Outlook for 2013

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory, Colliers International, says, “Going forward, should macro-economic conditions remain stable throughout the year, retail rents are expected to stay fairly resilient with the continued momentum of new openings and setups; hence, keeping any downward pressure on rents to within five per cent. 

Rents of prime retail space in the Regional Centres are expected to sustain better than those in Orchard Road – given the immediate shopper catchment, ensuing demand from retailers seeking a presence in well-located sub-urban malls.”

The Jurong East Regional Centre, in particular, will witness an influx of retail offerings in 2013.  Jem, which has 575,000 sq ft new lettable retail space, is expected to be completed in 2Q 2013 – housing anchor tenants such as Cathay Cineplex, Courts, Fairprice Xtra Hypermart, Koufu, Marks and Spencer, and Robinsons. 

The nearby 426,000 sq ft Westgate will be completed six months after Jem – housing prominent tenants including Food Republic, Isetan, Paradise Dynasty, Paul Bakery, and Yamaha Music School, among others.

Strata-titled retail sales will continue to be fuelled mostly by investor demand.  Meanwhile, given the limited new launches for retail space and the level of interest for such properties, existing strata-titled retail units would benefit from increased prices.

Ms Chia continues, “The capital values of prime strata-titled retail units in Orchard Road is likely to increase by at least 5 per cent in 2013, on the basis that the Government does not introduce new property measures that will dampen the commercial sector.

Similar units in non-central areas may register comparatively higher price increases than Orchard Road, especially if there are new launches of retail units as part of mixed-use developments that can enjoy a ready catchment of pedestrian flow.”