Drop in prime retail rents levelling off

Report: Smaller dip due to economic recovery, active leasing market

THE decline in prime retail rents looks set to bottom out as the economic recovery gathers pace and consumer confidence rebounds, says a new report.

In its latest analysis of Singapore’s prime retail scene released yesterday, CB Richard Ellis (CBRE) found that the pace of prime Orchard Road rental decline slowed significantly in the first quarter of this year to an average rent of $32.20 per sq ft (psf), down just 0.7 per cent from the previous quarter’s figure.

The dip is markedly smaller than in the previous four quarters, which saw falls of between 1.5 per cent and 3.3 per cent, CBRE said.

CBRE director of retail services Letty Lee said: ‘The Orchard Road retail scene has evolved in the last 12 months…The slowdown in the rental decline is a sign that Orchard Road shops are holding up fairly well at this stage in the recovery.’

The firming market is believed to be partly due to an active retail leasing market during the last quarter.

Youth-themed mall *Scape in Somerset Road has announced an 80 per cent pre-commitment ahead of its June opening, and the basement link from Raffles City to Esplanade due to open in July is said to be more than 63 per cent pre-let.

Ms Lee said a range of factors come into play when determining rentals, including the extent of the global economic recovery and whether the integrated resorts (IRs) will generate enough buzz to increase tourist numbers and spending.

Last month, DTZ Research reported that, with tourist arrivals expected to grow and local consumption improving, demand for retail space was likely to rise.

Ms Chua Chor Hoon, DTZ’s head of South-east Asia research, noted that retail rents had held firm during the quarter, despite new supply coming onstream last year and during the first quarter of this year. But the estimated 2.3 million sq ft of new retail space for this year is 15 per cent down on the 2.7 million sq ft of new supply released onto the market last year, she said.

Ms Chua predicted prime retail rents will rise moderately this year. ‘Demand for retail space is more supply-led. Brands will want to increase their footprint to improve revenue as more space comes up. Many new brands and F&B concepts are entering the Singapore market as well, which will absorb this supply.’

Increases in rent for food and beverage (F&B) spaces have already been seen, with increasing demand from newer concepts such as all-day breakfast outlets, 24-hour grocers and gourmet markets, CBRE’s Ms Lee said.

She anticipates an interesting year ahead with the opening of the two IRs and the second phase of the Circle Line from Bartley to Dhoby Ghaut, which will ‘effectively facilitate islandwide mobility and redistribute shopper traffic’.

‘Expectations are up and we look forward to an even wider array of shops and retail experiences with the entry of more new-to-market labels and international brands – many of which are looking at Singapore as a springboard into the Asian market,’ Ms Lee said.

Suburban rents for prime space had remained stable, said DTZ and CBRE, citing average rates of $33.50 psf and $28.10 psf respectively, unchanged from the previous quarter’s figures.

Source: Straits Times, 8 Apr 2010