- 2018 retail rents bottomed, led by recovery in ground floor rents in both Orchard Road and Regional Centres
- Government-backed remaking of Orchard Road may herald brighter prospects for retailers and landlords in 2019 – 2023
- Industrial property market ended 2018 with signs of stabilisation, supported by healthy demand for space
- Bright spots for industrial property sector in 2019 include business parks, high-specs buildings, data centres and central kitchens
SINGAPORE, 01 March 2019 – The retail and industrial property sectors in Singapore appeared to have found a bottom as rentals continued to stabilise in 2018. In two separate half-yearly research reports released today, Colliers International projects further rental recovery for prime retail space in Orchard Road and Regional Centres, as well as selected segments of the industrial property sector.
The retail rental market firmed up towards the end of 2018. Data from the Urban Redevelopment Authority (URA) showed that overall Central Region rents rose by 1.2% quarter-on-quarter (QOQ) for Q4 2018, leading to a slower pace of rental decrease of just 1.0% for the full year 2018 – compared with the sharper declines of 4.7% and 8.3% for 2017 and 2016 respectively. This could signal the bottoming of a long-running decline since Q1 2015.
Colliers’ research tracking prime retail rents revealed that Orchard Road ground-floor rents moved up 1.4% year-on-year (YOY) to SGD41.20 per square foot per month (psf pm) during the second half of 2018, while the Regional Centres saw a marginal uptick of 0.4% YOY to SGD33.60 psf pm.
Ground-floor rents are expected to continue to lead the gradual recovery, but overall retail rents should continue flattening out in 2019-2020 before picking up sustainably on more favorable supply-demand dynamics. Colliers Research projects Orchard Road ground-floor rents to rise by 0.8% YOY to SGD41.55 psf pm in 2019.
Meanwhile, retail vacancies in Q4 2018 increased by 0.9ppt QOQ to 8.5%. On a YOY basis, vacancies have risen by 1.1ppt since the end of December 2017.
Ms. Tricia Song (宋明蔚), Head of Research for Singapore, Colliers International, said, “Singapore’s retail rents may have bottomed, even as near-term vacancies remain elevated as brand-new malls complete and compete. Island-wide retail vacancy increased for a second consecutive quarter in Q4 2018 as more retail stock was completed progressively. The increase in rents even as vacancy goes up could mark the end of the supply overhang in the next few quarters.”
Supply of retail space is expected to increase in the coming years, with 3.4 million sq ft of net lettable space (planned and under construction) in the pipeline. In 2018, net new completions of retail properties came in at 1.0 million sq feet (94,000 sq metres), including Jewel Changi Airport, the redevelopment of Century Square in Tampines Central and various smaller additions island-wide.
Looking ahead, the government’s plans – announced on 30 January 2019 - to rejuvenate Orchard Road and strengthen its position as a lifestyle destination should lend more support to the retail sector, offering brighter prospects for landlords and retailers over 2019–2023.
Mr. Govinda Singh, Executive Director of Valuation and Advisory Services, Colliers International, said, “We believe this government initiative is timely and a step in the right direction, as the dated Orchard Road shopping belt shapes up to compete with newer retail destinations. In our view, the key challenge to building an iconic and unique Orchard Road is to unite the fragmented stakeholders to innovate and act quickly towards a common goal.”
Meanwhile, recent punitive measures on the residential sector, such the Additional Buyer’s Stamp Duty hike, have fueled a rise in investor interest towards the commercial sector, including retail properties. In the second half of 2018, total retail investment sales transactions jumped 73.2% from the first half (2018) to reach SGD897.8 million. This brought the full year 2018 retail investment sales transactions to SGD1.42 billion, down 43.3% from a robust 2017 which was boosted by the SGD2.2 billion Jurong Point sale in Q2 2017.
There was robust demand for industrial space last year. The number of industrial leasing records continued the upward trend from the first half of 2018 and totaled 5,280 in the second half of the year, as the market absorbed the abundant supply that entered in 2017 and 2018. According to JTC – Singapore’s lead agency to spearhead the planning, promotion and development of the industrial landscape – 2018 saw a 14.6% YOY jump in leasing records to 10,473, the highest since JTC began tracking the data in 2000.
Colliers Research found that occupiers took up 5.7 million square foot of industrial space on a net lettable area basis in the second half of 2018, taking the full year all-industrial demand to 7.3 million sq ft. Overall demand for industrial space is expected to remain firm in 2019 - projected at 17.6 million sq ft on a net lettable area basis - driven by the business park, high-specs building, data centre and central kitchen segments.
Mr. Dominic Peters, Senior Director for Industrial Services, Colliers International, said, “We expect demand for central kitchens in industrial properties to be driven by the rising popularity of food delivery services and e-commerce, the need of F&B operators to streamline their retail spaces, as well as the Government’s push for greater productivity and innovation in Singapore food industry.”
Two upcoming food complexes – Bedok Food City and Poultry Processing Hub @ Buroh – developed by JTC are among the largest industrial projects in the pipeline for 2019. With robust supply coming on stream, Colliers Research forecasts rents and prices of central kitchens to remain largely stable over the next five years.
According to JTC, overall new supply in 2019 is set to increase to 16.2 million sq ft (gross), with 64% of that single-user factories, before easing from 2020 onwards.
On the rental front, recovery will likely be two-tiered with high-specs and business park space faring better due to the higher demand, lower supply and also from the spillover effect from a strong office rent recovery in 2018, as well as further office rental upside in 2019. As more than 80% of the total upcoming supply from 2019 onwards will be factory spaces - mostly conventional factory - rents in this segment would likely remain pressured in 2019.
According to Colliers’ research, business park monthly rents rose by 2.9% YOY to SGD4.31 psf pm in the second half of 2018, as tenants continued to favor newly completed and refurbished buildings with better specifications and in good location. Meanwhile, upper floor rents for independent high-specs industrial buildings located outside of science parks and business parks increased 2.1% YOY to SGD2.90 psf pm.
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