Retail rents see strongest growth in five years

By Bong Xin Ying / EdgeProp Singapore | January 26, 2019 9:41 PM SGT
URA’s retail rental index rose by 1.2% q-o-q in 4Q2018, making it the strongest quarter for rental growth in five years since 3Q2013, says Cushman & Wakefield (C&W). This compares to a 1.2% decline q-o-q in 3Q2018. Between 4Q2014 and 3Q2018, rents declined a cumulative 18.1%, except for 1Q2018 which showed an uptick of 0.1% q-o-q, according to Colliers International. Prices of retail space rose by 1.5% q-o-q in 4Q2018, following the previous quarter’s 0.3% q-o-q increase.
Meanwhile, islandwide retail vacancy increased for a second consecutive quarter as more retail stock was completed progressively, says Tricia Song, head of research for Singapore, Colliers International. Retail vacancy was 8.5% in 4Q2018, up by 0.9 percentage point q-o-q and 1.1 percentage point y-o-y. In the quarter, the largest new supply injection came from Jewel Changi Airport with a gross floor area (GFA) of 929,000 sq ft. Elsewhere, Raffles Hotel Shopping Arcade and City Gate saw 124,000 sq ft and 102,000 sq ft respectively of GFA completed in 4Q2018.
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SuperPark Singapore opened a 40,000 sq ft indoor playground in November 2018 in Suntec City (eft), while the world's first Nerf Experience Centre will open at Marina Square (Credit: Samuel Isaac Chua/EdgeProp Singapore)
Orchard Road continued to outperform as its vacancy rate slid to 5.1% in 4Q2018 – the lowest since the 4.5% recorded in 3Q2014, says Tay Huey Ying, JLL’s head of research and consultancy, Singapore. It is also the lowest vacancy rate recorded in 4Q2018 among all the regions reported by the URA. This attests to the street’s continued appeal to new-to-market brands as well as those looking to expand their footprint in Singapore, notes Tay.
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Supply should taper off significantly from 2020. “In 2019, we expect ground floor retail rents in prime shopping centres along Orchard Road to rise marginally by 1% to 2% y-o-y, due to the lack of new stock, while prime floor rents for regional centres (suburban) should stabilise,” says Colliers’ Song. For the regional centres, Song reckons those in suburban locations with significant catchment areas and MRT connections should outperform the less strategically located suburban malls.
“Besides the continued challenge from e-commerce, we expect elevated new retail space supply in late 2018 to 2019 (equivalent to 3.0% of current stock), spread out over the central region, city fringe and suburban areas,” she adds.
The amount of occupied retail space also rose by 258,334 sq ft in 4Q2018, says Christine Li, senior director of research at C&W. This could be due to the “coworking operator such as IWG taking up 20,600 sq ft of retail space at Capitol Singapore”, she says.
Activity-based tenants are also taking up large spaces in malls, as retail landlords are moving beyond passively selling goods and services to enhance customers’ shopping experience, Li adds. One example is SuperPark Singapore which originated from Finland. It opened a 40,000 sq ft indoor playground in November 2018 with life-sized pinball, baseball and trampolines in Suntec City. Marina Square will also bring in the world’s first Nerf Experience Centre spanning 18,000 sq ft.
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Looking ahead, some rental growth is expected to be seen in 2019, with the momentum mainly driven by prime properties, says Desmond Sim, CBRE’s head of research, Singapore & Southeast Asia. He deems a strong rebound to be unlikely in the mid-to-long term, as “challenges still plague the market”.
“Aside from the tight domestic labour market and competitive e-commerce scene, there are growing concerns over China’s slowdown from the impact of the trade conflict, the Chinese government’s crackdown on overseas purchases and the alignment of luxury goods prices in China to global standards, which could potentially dent tourist spending and retail sales in Singapore,” says Sim.