Strata retail spaces under threat as malls beef up enhancement initiatives

Demand for new sale leasehold strata retail units plunged 69% in 1H.

The availability of good quality spaces in landlord-owned malls is expected to pose a threat to the occupancy of strata retail units. Rental yields could also fall, as the overall retail market softens, warns Knight Frank.

According to the research firm, the overall retail space sector is faced with falling occupancy rates, and many landlord-owned retail malls are seeking to enhance performance by re-positioning. A key strategy of several landlords is to refresh their tenant mix.

As a result, Knight Frank believes that total transaction performance for H2 2016 for strata retail units is expected to be similar to that seen since H1 2015, at between 100 and 120 units per half-year, amidst lack of significant change in buyer sentiment.

The research firm meanwhile expects freehold strata retail spaces in good locations to remain highly sought-after due to their scarcity.

A total of 32 caveats were recorded for Centrium Square, understood to be lodged by Canali Logistics Pte Ltd, which amounted to S$70.1 million in transaction value. This drove average price for new sale freehold strata retail units up by 32.6% to S$3,741 psf, while the total number of caveats lodged ballooned 263% in H1 2016 compared to H2 2015.

Meanwhile, average price and transaction volume stayed fairly stable for resale freehold strata retail units.

On the other hand, with limited new launches, demand for new sale leasehold strata retail units dived 69.0% to 9 caveats in H1 2016 compared to H2 2015.

Conversely, average prices rebounded to S$3,903 psf after declining in H2 2015.

Demand for resale leasehold strata retail units contracted 17.9% to 23 caveats in H1 2016, with average price declining 3.6% in H1 2016 compared to H2 2015.

The proportion of Foreigners buying retail units shrunk to 6.5% in H1 2016 compared to 11.9% in H2 2015.