Retail rents in central region falls by 14.7% in 2020

By Valerie Kor

/ EdgeProp Singapore |

January 22, 2021 6:30 PM SGT

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SINGAPORE (EDGEPROP) - The retail rental index for the Central Region fell 14.7% y-o-y in 2020. Rents of retail space in the central region decreased by 5.2% q-o-q in 4Q2020, following the fall of 4.5% q-o-q in 3Q2020.

Leonard Tay, head of research at Knight Frank Singapore, observes that even as the working crowd returned gradually, total spending at retail stores remained limited since tourist numbers stayed a small fraction of pre-Covid-19 levels. Between January to November 2020, 2.7 million visitor arrivals were recorded, which was only 14.1% of the 19.1 million recorded in 2019, he notes.

To maintain occupancy rates, landlords remained flexible when negotiating lease terms and compromised on rents, which resulted in the sharp fall in retail property rents in 2020, says Angelina Phua, consulting director at JLL Singapore.

“Weakness persisted in the rental performances of Orchard and Downtown Core locations,” notes Desmond Sim, head of research at Southeast Asia, CBRE.

However, as Singapore entered Phase Three of reopening measures, vacancy rates in retail space declined for the first time last year in 4Q2020. Sim observes that net absorption for 4Q2020 turned positive to 258,334 sq ft, after three quarters of negative net absorption. Overall, the islandwide vacancy rate for retail space declined to 8.8% in 4Q2020, which was in the range of pre-Covid-19 levels, he notes, adding that retailers are possibly emboldened by the return of shopper traffic and encouraging retail sales in selected segments.

The increase in the net new demand, coupled with a contraction in supply of new retail space by 279,861 sq ft in 4Q2020, led to a slight improvement in the overall occupancy, which increased from 90.4% in the previous quarter to 91.2% in 4Q2020, notes Knight Frank’s Tay.

The threat of e-commerce

Aside from significantly lower tourist arrivals due to Covid-19 travel restrictions, another reason for the large fall in retail rents is the higher adoption of e-commerce, says Wong Xian Yang, associate director of research for Singapore and Southeast Asia at Cushman & Wakefield.

“Online retail sales are now at around 11% of total retail sales on average, after the circuit breaker period. Before the circuit breaker, the proportion of online retail sales was around 6%,” Wong adds.

According to a 4Q2020 retail market report by Knight Frank, online sales accounted for about 16.7% of total retail sales (excluding motor vehicles) in November, which amounted to $3.1 billion, due to large-scale shopping events such as Black Friday and 11.11. Brick-and-mortar stores are also going virtual, with Isetan and Metro selling products on platforms such as Lazada, and BHG launching its own e-commerce site.

Read more: Creativity, flexibility needed for retailers to survive in recession

Online retail transactions were mostly in the categories of computer and telecommunications equipment, furniture and household equipment, as well as groceries and goods from supermarkets and hypermarkets.

With safe management measures still in place, activity-based retailers — who were the main drivers of retail spaces in recent years — are still unable to operate at maximum capacity, observes Wong, who points to the high-profile closure of Robinson stores at Heeren and Raffles City as an example.

On the other hand, there are other bright spots in the market, such as the athleisure and home furnishing sectors, which have continued to grow despite the pandemic, notes Wong.

CBRE Research believes that the retail market remains two-tier, with lower rents in secondary spaces and corridors of prime locations. “This could initiate some upgrading demand from retailers looking to expand or relocate,” says Sim.

As Covid-19 risks linger, Sim believes that the retail sector will still be plagued by uncertainty over the recovery of the tourism industry and prolonged disruptions from the global pandemic. However, CBRE Research foresees that retail rents will stabilise over the course of 2021.

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