Retail rents continue to decline in 1Q2023, but at a slower rate compared to past quarters

By Jennifer Venkat
/ EdgeProp Singapore |
Rents for retail spaces in Singapore’s Central Region decreased by 0.3% in 1Q2023, easing from the 1.1% decrease in the previous quarter (Picture: Albert Chua/The Edge Singapore)
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SINGAPORE (EDGEPROP) - Rents for retail spaces in Singapore’s Central Region decreased by 0.3% in 1Q2023, easing from the 1.1% decrease in the previous quarter, according to quarterly data released by URA on April 28. Y-o-y, rents decreased by 2.3%. Meanwhile, prices of retail space in the Central Region decreased by 0.9% in 1Q2023, compared with the 2.1% decrease in the previous quarter.
With the latest quarterly data, the URA retail rental index has now been in decline for three years or 13 consecutive quarters (for a period between 1Q2020 and 1Q2023), cumulating an overall 22.6% decrease from 4Q2019, according to Knight Frank.
property price index - EDGEPROP SINGAPORE
Source: URA
Despite the decline in rents, Leonard Tay, head of research at Knight Frank Singapore, says that the retail sector is in a “much better position” compared to two years ago. Given that most international borders in the region have now reopened, Singapore welcomed more than one million visitors in March 2023. As a result, the retail sector is improving fast and approaching pre-pandemic normalcy, maintains Tay.
Furthermore, Tay says that while the retail rental index for the Central Region remained in decline, retail rents in mall spaces islandwide continued to improve. Knight Frank’s tracking of prime retail rents island-wide averaged $26.40 psf per month (psf pm), pointing to a 1.2% q-o-q and 5% y-o-y increase in 1Q2023.
In the Central Area of Singapore, retail assets tracked by Knight Frank show the Orchard Area leading the way, registering the highest the highest rental increase of 5.8% y-o-y to $29.50 psf pm in 1Q2023. It was followed by the Marina Centre, City Hall and Bugis regions. Rents in these regions went up 5.2% y-o-y at $24.20 psf pm in the first quarter.
Occupied retail space decreased by 75,347 sq ft in 1Q2023, reversing from the previous quarter, which registered an increase of 710,418 sq ft. Occupancy levels islandwide thus decreased slightly to 92.4% in 1Q2023 from 92.9% at the end of 2022. Correspondingly, vacancy rates increased by 0.5 percentage points to 7.6%.
Source: URA
According to Lam Chern Woon, head of research and consulting at Edmund Tie, the fall in retail demand in 1Q2023 was broad-based across segments. An exception to this were retail assets in the fringe area, which saw occupied retail space increase from 64,583 sq ft to 150,695 sq ft in the first quarter.
In any case, Lam points out that the lower demand for retail space islandwide comes amid a reduced need for large storefronts due to turbulence in the global economy as well as the rise of e-commece. He also attributes the higher vacancy rates to a boost in retail space supply totalling 138,854 sq ft in 1Q2023, driven by the completion of Sengkang Grand Mall as well as hotel developments with retail components.
In terms of supply pipeline, URA data shows that there is a total supply of 4.38 million sq ft of gross floor area (GFA) from projects in the pipeline as at the end of 1Q2023.
retail space graph - EDGEPROP SINGAPORE
Source: URA
Going forward, retailers remain optimistic about tourism recovery and consumer spending, they may continue facing headwinds such as manpower shortage, higher operating costs, ongoing competition from e-commerce, an economic slowdown and a Goods and Service Tax (GST) hike, observes Tricia Song, head of research, Southeast Asia at CBRE.
Nonetheless, Song believes that the recovery in the sector, combined with limited new retail supply in the next few years, will continue to support rents for retail spaces for the rest of the year.
Knight Frank’s Tay concurs, noting that the retail sector is now “firmly on the road to recovery from the dark days of the pandemic.” “So long as Singapore remains in Dorscon green, prime rents of retail space are likely to grow between 3% and 5% for 2023, with the prime shopping belt Orchard Road leading the recovery,” he opines.
Edmund Tie’s Lam has a slightly more bearish outlook. “Retail sales growth will moderate further in 2023, as consumers will be more inclined to tighten their belt and reduce discretionary spending,” he says. Nonetheless, he notes that tourism recovery will continue to support the retail market, with an anticipated increase in the arrival of Chinese tourists in 2H2023 expected to bolster demand. Edmund Tie is projecting prime first-storey retail rents to grow by 2% to 5% this year, with other retail segments to see 1% to 1.5% growth.

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