Orchard Road vacancy drops even as retail rents in Central Region falls 1.1% in 2Q2018

By
/ EdgeProp Singapore
|
July 30, 2018 7:29 PM SGT
The +0.1% uptick q-o-q in Central Region retail rents in 1Q2018 was short-lived. The URA retail rental index showed a reversal – a 1.1% decline q-o-q - for 2Q2018. The URA’s Retail Price Index for the Central Region also fell in tandem, declining by 1.3% q-o-q in 2Q2018, compared to the marginal 0.1% q-o-q growth of the previous quarter.
“They underscore a market that remains mired with challenges, including technological disruption and rising operational costs,” says Tay Huey Ying, JLL head of research & consultancy for Singapore.
Island-wide retail vacancy decreased by 0.2 percentage points (ppt) q-o-q to 7.3% in 2Q2018. On a y-o-y basis, vacancy fell 0.8 ppt since 2Q2017. The retail vacancy is trending toward “sub-7%” vacancy levels, compared to vacancy rates above 8% in the 2016-2017 period, notes Tricia Song, Colliers International head of research for Singapore.
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Traditional fashion retailers being supplanted by retailers of lifestyle and entertainment products and services such as gyms, even in prime retail space. These tenants generally take up large spaces and look for low rents (Credit: Samuel Isaac Chua/EdgeProp Singapore)

Vacancy lowest in 14 quarters

Orchard Road space however, continued to display resilience as vacancy rates inched downwards to 5.6% in 2Q2018, the lowest in 14 quarters. This is possibly attributed to the lack of new supply introduced, says CBRE.
The drop in vacancy is the result of a rebalancing by retail landlords who are willing to trade off historically high rents for more stabilised occupancy amid challenging market conditions, says Colliers’ Song. Since the last peak in 4Q2014, retail rents in the Central Region have declined 17.1%.
Orchard Road space however, continued to display resilience as vacancy rates inched downwards to 5.6% in 2Q2018, the lowest in 14 quarters (Credit: Samuel Isaac Chua/EdgeProp Singapore)
Contributing to the continued softening of rents is the changing tenant profile and location preferences arising from the shift in consumers’ shopping habits, says JLL’s Tay. She points to traditional fashion retailers being supplanted by retailers of lifestyle and entertainment products and services such as gyms, even in prime retail space. These tenants generally take up large spaces and look for low rents.
The new slew of cooling measures in the residential market is expected to shift some demand into the retail space, but retail demand is expected to be non-homogenous and will favour units in accessible locations with strong footfall.
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Pipeline

Retail rents could remain pressured by a high operating cost environment, competition from e-commerce and a healthy supply pipeline, with the completion of the mall at Paya Lebar Quarter and Jewel Changi Airport, expected to be completed later this year, says Christine Li, Cushman & Wakefield senior director of research. “Retailers and landlords have to continue to re-invent themselves, investing in technology and focusing on lifestyle and activity-based experiences to keep pace with the fast-changing retail landscape,” she says.
Prime suburban space remains highly sought after by retailers, as evidenced by the strong take-up of space at the recently opened Century Square at Tampines Central after a nine-month makeover (Credit: Samuel Isaac Chua/EdgeProp Singapore)
Take-up of retail space island-wide remains healthy, as around 226,000 sq ft of retail space were absorbed in 2Q2018, higher than the 108,000 sq ft of net supply in the same quarter, notes Li. The bulk of net absorption was in the suburban (Outside Central Region) which saw 258,000 sq ft of space being taking up. Prime suburban space remains highly sought after by retailers, as evidenced by the strong take-up of space at the recently opened Century Square at Tampines Central after a nine-month makeover, she adds.