Prime retail rents stable after contracting seven quarters

Retailers and landlords becoming more optimistic behind higher GDP and tourist arrival estimates.

Prime Orchard rents remained stable in the third quarter of this year, after seven quarters of contraction – averaging at $31.10 psf between July and September 2010. Suburban malls continued to strengthen, underpinned by strong catchment demand. Prime Suburban rents rose to $29.0 psf/month in Q3 2010, up from $28.50 psf/month a quarter ago, according to a CBRE Research report.

Overall, retail rents headed south in Q3 2010, with the exception of rents in prime Orchard Road and suburban malls. The difference in rentals between prime suburban and prime Orchard space continued to narrow. In 1996, the gap between the two markets was 28.8 per cent. It fell to 16.8 per cent in 2003 due to the double whammy caused by the outbreak of SARs and the Iraq war, but rebounded to 21.0 per cent in 2007. At end-2009, the difference narrowed to 13.2 per cent as tourist- reliant trades in Orchard Road reeled from the effects of the global financial crisis. In Q1 and Q2 2010, the gap decreased further by 12.6 per cent and 8.2 per cent respectively. It was only a mere 6.6 per cent difference in Q3 2010.

Director, Retail Services Letty Lee said “This trend is likely to continue as Orchard Road adjusts to the recent new supply as well as competition from the Integrated Resorts. We need to bear in mind that suburban malls have mass market appeal as they are strategically located with good transport connections; residential catchment in its immediate surroundings and as such are an attractive alternative to a large number of tenants”.

About 4.12 million sf of retail space is likely to be completed between Q4 2010 to 2015. Of which, just under 2.0 million sf will be completing in the next 15 months.

These include Phase 1 of Marina Bay Link Mall at Marina Bay (93,800 sf net lettable area NLA), Clementi Mall (194,000 sf NLA), Orchard Xchange at Orchard MRT (16,800 sf NLA), nex at Serangoon Central (600,000 sf NLA), Solaris at one- north (3,200 sf NLA).

There was much news about high vacancies in some local malls, ailing tenants seeking rental rebates as well as the attrition and consolidation of certain businesses.

On a broader perspective, no major brands have exited the market. More premium F&B outlets have set up shop here and healthy enquiries are still forthcoming from overseas retailers. Landlords, noting that the third quarter was generally quieter post-GSS, are more responsive and creative in supporting tenant businesses.

Retailers and landlords are gearing up for the F1 2010 race as well as the year- end festivities. Encouraged by the higher GSS spendings, combined with higher GDP and tourist arrival estimates, retailers are generally more optimistic about operating conditions for the remainder of 2010.

Tenants at MRT locations have traditionally comprised convenience stores, takeaway counters as well as trades catering to commuters. Lately, more dine- in outlets have sprouted within inner- city underground xchanges, encouraging pedestrians to linger and shop. With the construction of more new lines, it could be timely to re- look at the trade mix and configuration of these retail locations. Riding on a wider reach provided by a more extensive train network, retail space within major MRT hubs could be re- positioned as shopping destinations, targeting at a savvier group of consumers instead of just transient traffic.

Candy lovers now have more reasons to cheer since the 9,000- sf Candylicious opened at Resorts World Sentosa in mid- September. This adds to the stable of confectioneries such as Candy Empire, Royce, Beschle and Awfully Chocolate which saw the opening of new stores recently. Indeed, the sweet and snack industry seemed resilient in spite of the economic slump last year, with shops retailing “happy food” sprouting islandwide in the past 12 to 18 months. Such retailers offer products ranging from liquored ice cream to rock candies to tantalise anyone with a sweet tooth. Such outlets sell solely chocolates/candies/yoghurt/ice cream or a dessert buffet spread. The stores come in formats ranging from kiosks to flagship stores, and are operated by local setups or international chains.

These retailers have apparently hit a sweet spot, as many have planned expansionary moves. For instance, Hershey’s will be opening its first city store at Citylink Mall before Christmas. It was earlier reported that it plans to open up to seven stores in Singapore within three years. Such a move may be timely in view of the supply coming on stream.