Can Singapore's retail sector finally break free from protracted rental slump?

Prime ground floor rents in Orchard Road could increase 1-2% amidst supply tapering off.

Figures from the Urban Redevelopment Authority (URA) revealed that retail rents in 2018 dipped 1% after a 4.7% fall in 2017. On a QoQ basis, rental rates island-wide hiked 1.2% in Q4 compared to the 1.2% fall in Q3.

“This shows that there is still underlying uncertainty in the sector, despite the market showing positive signs from a gradual increase in retail sales and tourism growth,” Desmond Sim, Head of Research, Singapore & Southeast Asia, CBRE, commented.

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Meanwhile, prices of retail properties rose 0.6% in 2018 after an 8.8% fall in 2017. On a QoQ basis, retail space prices inched up 1.5% in Q4 which is higher compared to the 0.3% increase in Q3.

Across Singapore, the largest supply injection was boosted by the Jewel Changi Airport with a gross floor area (GFA) of 86,300 sqm. Meanwhile, Raffles Hotel Shopping Arcade and City Gate also added GFA spaces amounting to 11,500 sq m (124,000 sqft) and 9,500 sq m (102,000 sqft) in Q4 2018, respectively.

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By the end of Q4 2018, URA noted that total retail supply has dipped down to 387,000 sqm or a 22.75% decrease from the 501,000 sqm of retail space supply in Q3.

“Q418 set of numbers provide a hopeful sign that Singapore’s retail property market has embarked on a firmer path to recovery on the back of retailers and landlords’ rising dexterity in navigating the new retailing landscape amidst steady consumer sentiment and an upbeat tourism sector,” JLL head of research and consultancy for Singapore Tay Huey Ying commented.

As at the end of 4th Quarter 2018, there was a total supply of 387,000 sq m GFA of retail space from projects in the pipeline, compared with the 501,000 sq m GFA of retail space in the pipeline in the previous quarter.

“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,” Colliers International head of research for Singapore Tricia Song said.

Also read: Retail space supply to hit 1.53 million sqft in 2019

Song noted that supply should taper off significantly from 2020. Meanwhile, she added that ground floor retail rents for prime shopping centres in Orchard Road could hike by 1-2% YoY amidst the lack of new stock whilst prime floor rents in regional centres could see stabilisation.

The possible rental growth in 2019 is also echoed by Sim, noting that momentum could likely be buoyed by prime properties.

Also read: Prime retail rents in Singapore may see muted growth until 2022

“In the mid to long term, a strong rebound is unlikely as challenges still plague the market,” Sim said, adding that malls in the secondary locations and corridors are still showing signs of weakness, with continued rise of vacancies in the Downtown core and Fringe areas.

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“The shift in tenancy mix towards activity-based retail and pop-up concepts could also put a dent to average rents as these tenants typically pay lower rentals,” he explained.