Tuesday, December 22, 2009

Orchard rents end year-long fall

IN KEEPING with the festive decorations lighting up the prime Orchard retail belt, landlords on the famous strip have just received news bound to brighten the gloomy mood cast by the downturn.

After four straight quarters of decline, rents for first-storey Orchard Road and Scotts Road retail space inched up 1 per cent to $39.70 per sq ft (psf), a month after falling 7.3 per cent since the third quarter of last year.

Rents in suburban areas seem to be stabilising as well, buoyed by the upswing in the economy, property reports suggest.

The report, from DTZ Research, also said prime first-storey gross rents in suburban areas rose 1.5 per cent quarter-on-quarter to $33.50 psf per month.

However, rents in fringe city areas such as Great World City and Bugis Junction continued to fall. These malls miss out on local residents, who patronise suburban malls, and the tourist crowd that heads to Orchard, said DTZ South-east Asia research head Chua Chor Hoon.

She added that leasing activity has increased as retailers gain more confidence along with the economic recovery: ‘There is strong demand for prime first-storey space, evident from the little availability and speed at which they are taken up, despite the amount of new space that has come up along Orchard Road.’

An estimated 2.6 million sq ft of new retail space, including 313@Somerset and Mandarin Gallery, were added to the stock this year – the most ever seen. A major revamp of Orchard Road alone has meant almost 1.4 million sq ft of new retail space.

At the start of this year, things had looked quite bad. Prime shop rents in Orchard Road had fallen for the first time in five years in the fourth quarter of last year, as consumers tightened their belts and new malls flooded the market.

CB Richard Ellis (CBRE), for one, painted a gloomy picture in March, tipping a 15 per cent to 20 per cent fall in Orchard Road prime rents this year as the economy slumped.

Many retailers had cried out for rent cuts as they saw the economic crisis further undermining already weak sales.

However, things are now looking up, with CBRE reporting $801.5 million worth of retail investment transactions concluded in the fourth quarter, making up 85.5 per cent of the full-year total.

Most analysts have also revised their forecasts, expecting prime retail rents to end the year down 3 per cent to 6 per cent.

Next year looks far brighter. Ms Chua expects prime retail rents in Orchard Road and suburban areas to move up by 2 per cent to 7 per cent. Property consultancy Knight Frank’s managing director Danny Yeo expects a 1 per cent to 3 per cent increase.

‘With the major malls in Orchard already open, prime retail space is now dwindling quickly, so retailers have fewer choices available… The market is also less uncertain, so landlords can afford to increase rental,’ he said.

CBRE said the year ahead looks exciting given the opening of the two integrated resorts (IRs), more underground retail space at Marina Square, Raffles City, Marina Bay and Circle Line stations, and suburban malls in Clementi and Bedok.

However, it was less bullish, predicting Orchard rents will dip 5 per cent to 10 per cent next year as businesses and trading patterns adjust to the completion of the new malls. CBRE expects rents to stabilise only in the next 12 to 18 months.

A spokesman at Mapletree, which has property interests, said: ‘In recent months, the economic statistics have improved and, with that, consumer confidence has risen in tandem and people are spending again. This has a direct correlation with retailers’ confidence in the recovery in the market.’

CapitaMalls Asia retail management (Singapore) general manager Teresa Teow also said retailers were more optimistic, with some looking at expansion again.

Dr Kenny Chan, managing director of watch chain The Hour Glass, also said he has seen consumer confidence improve, with an increase in spending compared with the same period last year.

DTZ Research estimates the new supply of retail space in Orchard Road will fall to 165,000 sq ft next year – just 7 per cent of the almost 2.4 million sq ft of new retail space projected, mostly at the IRs and at Nex in Serangoon Central.

More retail space

Almost 1.4 million sq ft of retail space were added to Orchard Road this year as four new shopping malls opened.

Mandarin Gallery: 126,000 sq ft
Ion Orchard: 710,420 sq ft
Orchard Central: More than 250,000 sq ft
313@Somerset: 294,000 sq ft

Source: Straits Times, 22 Dec 2009

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