International property consultant, Colliers International’s latest quarterly research report on the retail property sector revealed that prime retail rents across Singapore have generally stabilised in 2014 and is expected to come to a standstill this year.

This is on the back that demand for retail space by new start-ups or by existing retailers for their expansion plan is matched by tenants’ resistance to rent increases in a highly-competitive market, where the challenges of labour shortages and high occupation costs prevail. 

Colliers International expects that much of the real estate dynamics that played out in the retail sector in 2014 will be repeated this year. 

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “With approximately 1.2 million sq ft of retail space expected to be completed in 2015, the overall islandwide demand for retail space will continue to be supply-led.  It is expected that the usual slew of eateries and fast-fashion stores will continue to populate the tenant mix, alongside a supermarket and a food court, in new completed shopping malls.” 

She continues, “Retail rents are expected to continue to be at a standstill for 2015, as the positive interest from retailers to set up shop or expand will still be matched by retailers’ resistance to any increases in their operation cost in a challenging operating environment.   While newly-emerging non-mall retail options in varied and diverse locations might be characterised by moderate rent increases, those in traditional malls are likely to continue to experience fairly stable rents in the year ahead.”

Rental growth for prime ground floor retail space in the Orchard Road district is forecast to range between -1 per cent and 1 per cent in 2015, while that in the Regional Centres could plateau at between 0 per cent and 2 per cent in 2015.

As of end-2014, the average monthly gross rents of prime retail space in Orchard Road fell by a marginal 0.2 per cent quarter-on-quarter (QoQ) to S$36.17 per sq ft in 4Q 2014.  Over in the Regional Centres, the average monthly gross rent marginally climbed by 0.3 per cent QoQ to S$33.83 in 4Q 2014.

For the whole of 2014, the average monthly gross rents of prime retail space in Orchard Road marginally slipped by 0.8 per cent year-on-year (YoY), while those in the Regional Centres edged up by 1.1 per cent YoY. 

Consequently, the rental premium that prime retail space in Orchard Road commands over similar space in the Regional Centres shrank from 9 per cent as of the end of 2013 to 6.9 per cent in end-2014.

Mr Calvin Yeo (杨光伟), Deputy Managing Director of Colliers International, says, “The rental trends in 2014 indicated that retail activities have gained greater prominence in residential town centres islandwide and are no longer as heavily concentrated in central Orchard Road locations. 

In fact, much of the demand for retail space throughout 2014 has been supply-led.  Major retailers target new mall openings as opportunities to expand into new locations. As a result, most well-located new malls have achieved almost full occupancy by the time of their scheduled openings.”

For instance, The Seletar Mall in Sengkang West Avenue was reported to be 99.6 per cent occupied upon opening, while OneKM in Paya Lebar reportedly achieved close to 93 per cent of committed leases on its net lettable area by the time they commence operations.

Over in the retail sales market, a total of 453 strata-titled retail sales caveats were lodged for the whole of 2014. This was a mere 39 per cent of the 1,163 strata-titled retail sales caveats registered a year ago – a telling indication of how the imposition of the Total Debt Servicing Ratio (TDSR) has dented investment interest in retail units. 

Notwithstanding the lower volume of transactions, prices held steady. 

The average imputed capital values for prime Orchard Road strata-titled retail space remained unchanged at S$6,942 per sq ft by end-2014.  In the decentralised locations, the average imputed capital values for prime retail space in Regional Centres also remained stable at S$4,491 per sq ft since the beginning of 2014.

While shopping malls are still the main sources of physical space for retailers, food and beverage outlets, as well as lifestyle service operators, the retail real estate landscape in Singapore is slowly, but undeniably, changing to become more diversified.

Mr Yeo comments, “There is a growing trend, where retail shops and eateries sprout up in niche locations such as shophouse enclaves in Tanjong Pagar, Kampong Glam and Joo Chiat or within HDB estates.  Some operated from the ancillary retail space of obscurely-located industrial buildings or remote and private sites away from the hustle and bustle of urban life.”

He continues, “Many of these hidden gems position themselves to provide an uncommon ethnic or relaxed ambience, and are unfazed by the fact that they are not located amid heavy pedestrian traffic.  Instead, they rely on the Internet and the online reach of social media to attract and retain customers.  Additionally, the occupation costs are typically lower when compared to malls. Going forward, we expect that such alternatives will feature more in Singapore’s retail landscape, alongside the ubiquitous shopping malls.”

In fact, similar trends are also observed across the region. 

According to Colliers International’s 2015 Property Outlook, international retailers are riding on the boom in e-commerce/Internet to enter the markets such as China and India. For instance, Topshop set up an online store in China before opening any physical outlets, and Zara has also increased its online presence.  Additionally, investors see neighbourhood malls as key targets in 2015, and will explore repositioning and converting existing retail properties.

Looking back in Singapore, investor demand for strata-titled shops and F&B space (including mixed-use developments) is likely to remain weak in 2015 due to the continued effects of the TDSR and the spectre of increasing interest rates.

Ms Chia concludes, “Nonetheless, unit owners are expected to hold onto their price expectations, as such units remain rentable.  Hence, average capital values of prime strata-titled retail space in both Orchard Road and the Regional Centres are expected to remain generally flat for most of 2015.”