Shopping centres are set to open soon but take-up of retail space has slowed
ORCHARD Road's first new malls in a decade are set to open over the next few months - but the economic downturn means many shops will be empty.
Retailers have been slow to sign up in the face of falling consumer spending, leaving malls with the prospect of a lacklustre opening.
Take the Mandarin Gallery, the high-end mall at the corner of Orchard and Bideford Roads, which is undergoing a $200 million makeover to increase total gross floor area by 40 per cent.
Between March and October last year, it secured tenants for 60 per cent of its net lettable area. But in the four months since, occupancy has increased only marginally with the makeover due to be completed in June.
'To date, we are 69 per cent leased, with another 4 per cent out to be concluded by the end of this month,' said Ms Patrina Tan, senior vice-president of retail, marketing and leasing at Overseas Union Enterprises (OUE), which owns the mall.
Signing up of new tenants has also slowed to a crawl at Far East Organization's Orchard Central, next to the Somerset MRT Station.
Last October, the mall announced it was 60 per cent leased, at prices between $20 psf and $70 psf. Far East Organization's deputy director of retail management, Ms Susan Leng, had said in December she would 'be pretty happy if we can achieve an occupancy rate of about 80 per cent to 85 per cent...in this economic situation'.
But its occupancy has risen to just 65 per cent in the past four months.
Ion Orchard - the other mall being built from scratch on Orchard Turn - said it was 50 per cent leased last September, at prices of up to $80 psf. On Monday, it declined to comment on its leasing progress, although it is slated to open in the third quarter of this year.
Australian developer Lend Lease Retail, which is building 313@Somerset, said in May last year that it expects to fully lease all its units by around the middle of this year.
But according to Colliers' director for research and advisory, Ms Tay Huey Ying, 313@Somerset is - like the others on the strip - between 50 per cent and 70 per cent leased. That still leaves between 30 per cent and 40 per cent of untenanted retail space in each mall.
'In normal times, malls hope to open with at least 90 per cent tenancy,' said Ms Sherene Sng, head of retail at Knight Frank.
Retail consultants put the muted response down to the economic downturn, which arguably worsened after Lehman Brothers filed for bankruptcy last September.
OUE's Ms Tan noted that leasing activities started to slow in October as retailers were busy preparing for the Christmas season as well as cutting back on their expansion plans.
Industry insiders say some tenants have negotiated all the way to the dotted line, but still have not signed on it, citing the uncertain economic outlook. Even retailers that 'operate chain stores, and that one would typically expect to have deep pockets' are affected.
Ms Sulian Tan-Wijaya, senior director of retail and lifestyle at Savills Singapore, told The Straits Times: 'There have also been a few cases of tenants forfeiting their rental deposits, which typically amount to three months' rent.'
The consultants said they have heard of up to 10 such cases since October, but declined to name any of them.
All this is despite the increased willingness of landlords to negotiate cheaper rents, which property analysts said could fall by anywhere between 5 per cent and 13 per cent this year in prime locations on Orchard Road.
Landlords have reiterated that they always negotiate rent 'relative to sales', while many retailers said sales have dipped as much as 30 per cent in recent months.
Ms Tay said: 'Retailers will remain cautious for as long as the economy does not recover. But that doesn't mean the space won't eventually find a tenant.
'If landlords can negotiate and look to strike a win-win rental structure, I don't see why the occupancy rate should stay where it is.'
Ms Tan-Wijaya added that there is 'a ready database of strong retailers who still have the appetite to expand' and her firm is still seeing 'serious inquiries' for space in Ion and Orchard Central.
The malls are forging ahead to open as scheduled, even as visitor arrivals this year may drop by 6 per cent to 11 per cent and tourism spending is estimated to fall 15 per cent to 16 per cent.
Ms Tay said: 'There are many ways in which landlords could mask the presence of the non-tenanted spaces, such as through barricading or retrofitting. It's all about the aesthetics.'
Source: Straits Times, 12 Mar 2009