Orchard Rd rents fall 1.9% in Q4: CBRE

This is the first time these rents have headed south since Q4 2003

PRIME Orchard Road rents fell 1.9 per cent quarter-on-quarter to an average of $36.10 per sq ft per month (psf pm) in Q4 2008, property firm CB Richard Ellis (CBRE) said yesterday.

It is the first time these rents have headed south since Q4 2003, it said. They also contracted 0.8 per cent year-on-year, reversing their 5.4 per cent growth in Q4 2007.

Prime suburban rents dipped a more moderate one per cent quarter-on-quarter to an average of $29 psf pm in Q4 2008. The last time quarterly suburban mall rents contracted was Q2 1999. For the whole of 2008, they grew one per cent.

‘Retail rents were resilient in previous economic downturns (such as Sars, and the Asian Financial Crisis) due to limited supply then,’ CBRE said in a report released yesterday.

‘But going forward, weak demand is likely to coincide with an increase in supply. As such, downward pressure on rents is unavoidable. We expect renegotiations to commence in 2009, after the Chinese New Year festivities.’

The main danger to rents, analysts say, is the new supply of retail space set to kick in over the next two years. According to CBRE, known supply for 2009-2012 is 6.36 million sq ft, with most of this - 80.5 per cent or 5.13 million sq ft - completing in 2009 and 2010.

‘Developers and landlords, especially those with developments along Orchard Road, face increasing competition from the imminent supply of new malls, shops within the integrated resorts as well as refurbished shopping centres,’ CBRE noted.

Retailers are now more resistant to further rental increases, as local consumers, spooked by the prospects of unemployment and lower wages, have cut spending, it said. In addition, the economic recession has led to a drop in tourist arrivals.

In the light of this, CBRE reckons that prime Orchard Road rents could contract 5-10 per cent in the first half of 2009. At prime suburban malls a 2-3 per cent decline is likely, it said. Suburban rents will fall more moderately due to a ready population catchment, steady demand for basic necessities and comparatively less competition from new supply.

However, some resilient retailers could take the opportunity presented by lower rents and costs to expand their retail network, CBRE said.

‘Certain trades will continue to thrive, despite the gloomy outlook. Supermarkets, hypermarts and F&B in suburban malls might emerge more hardy, particularly those with unique F&B themed eateries,’ it said.

Source : Business Times - 1 Jan 2009