Challenging times ahead for retail sector

By Tan Chee Yuen / Colliers International, Cushman & Wakefield, The Edge Property | July 10, 2015 4:00 PM SGT
According to Colliers International, retail malls in Orchard Road are facing intense competition for domestic and tourist spending, in addition to geographical competition from malls in suburban Regional Centres. The average monthly gross rents of prime retail space in Orchard Road dropped 1.6% from $35.83 psf in 1Q2015 to $35.25 psf in 2Q2015 while rents at the Regional Centres held steady at $33.94 psf and recorded a 1.7% increase since 1Q 2013. As such, rental premium that prime retail space in Orchard Road commands over similar space in the Regional Centres continued to narrow from 6.9% as of the end of 2014 to 3.9% in 2Q 2015.
Calvin Yeo, Deputy Managing Director of Colliers International, says, “The retail property sector has continued to experience attrition, with reports on closure of shops and certain malls in Orchard Road suffering from poor shopper traffic and pedestrian footfalls. However, given the demand for more retail variety by an increasingly more affluent consumer base, new-to-market F&B and retail operators continue to set up shops in Singapore. This has helped to shore up occupancy rates of retail malls and cushion rental falls.”
Cushman & Wakefield observes that space consolidation among retailers became more prominent since the start of this year, with some retailers ending their lease contracts prematurely. In this quarter, Goods of Desire, Hong Kong cult homeware and lifestyle retailer, which has a 6,000 square feet (sf) store at The Central has terminated its contract.
In general, retailers became more cautious in store expansion this quarter. Interestingly, other non-mainstream retailers are relocating to shopping malls to capitalize on more affordable rents upon their lease expiry. For instance, lifestyle boutique Beauty Candy will be relocating to Mandarin Gallery from Cluny Court next quarter.
As leasing activity slows down, landlords have become more receptive to competitive rates in order to strengthen their tenant mix. The use of pop-up stores as a short-term solution to rising vacancies has also become more evident. One of the remaining bright spots is that F&B operators are still relatively keen on expansion given the flourishing F&B scene in Singapore. Approximately 18 restaurants, including one of the largest new-to-market brands such as Four Seasons from Bayswater and Parisian tearoom Angelina have opened in Capitol Piazza.
Colliers expects the retail sector to remain challenging this year with rents for prime retail space in Orchard Road declining by up to 5% in 2015 and the comparatively more...