Prime mall rents continue to slide as luxury shoppers vanish

Store closures might spike this year.

When tourist arrivals in Singapore rose in 2015, landlords at the city’s prime shopping district were hopeful that this might finally end the long losing streak of luxury retail rents. However, the uptick in tourist numbers failed to arrest the decline in the first quarter of 2016.

Statistics from DTZ showed that average monthly first-storey rent in the Orchard/Scotts road area declined by 1.0% q-o-q to about $37.65 per sq ft in Q1 as luxury shopping demand continued to wane.

DTZ noted that although visitor arrivals, which form the bulk of shoppers in the prime shopping district, inched up 0.9% y-o-y in 2015, much of the increase was because of the low base in 2014 that resulted from aviation accidents. Compared to 2013 – a more representative year – visitors arrivals actually declined by 2.2% in 2015.

“Retailers in Orchard/Scotts Road are expected to face some pressure, especially due to regional competition from countries such as Bangkok, South Korea and Taiwan, which possess distinctive cultures and offer affordable shopping,” DTZ noted.

The report added that cheaper air fares and the relatively strong Singapore dollar have also contributed to weaker retail sales as visitors defer travel plans to the city-state.

As a result of the challenging retail environment, more store consolidations are anticipated amid rising operating costs and weaker in-store sales.

Brands that have recently announced business cessation in Singapore include furniture retailer, iwannagohome, and F&B establishment, Smoothie King.

To counter the slump, retailers should focus on service and improving customer experience, DTZ said.

“The retail sector is likely to gravitate towards a consumer-focused and experiential-based model. As retailers embrace competition from the online and mobile markets, more are coming up with creative and innovative solutions to turn these challenges into opportunities,” the report said.

Photo by joyfull/Shutterstock.com