Chart of the Day: Prime retail rents on Orchard Road see first decline in four quarters

They moderated by 5.0% to $32.9 psf.

Retailers who have been facing high operation costs, lower retail sales and manpower constraints welcome the lower rental level.

According to Savills’ Retail Sector Briefing, landlords in the Orchard precinct have begun to hold out olive branches to retailers in the face of an increasingly difficult business environment.

Prime retail rents on Orchard Road moderated by 5.0% to S$32.9 per sq ft per month in Q4/2014. This is the first decline after four consecutive lull quarters. The lower rental level is a welcome move for retailers who have been facing high operation costs, lower retail sales and manpower constraints.

On the other hand, prime suburban mall rents continued to hold firm at S$31.1 per sq ft per month in the same quarter as businesses remain resilient in these malls that serve a large population catchment.

Savills adds that as the rental gap between the prime Orchard and suburban malls narrows, retailers are beginning to turn their interest to retail space in Orchard Road, where the easing of rents led to an increase in take-up as evidenced by the fall in vacancy rates by 2.3 percentage points (ppts) QoQ to 5.6% in Q4/2014.

That said, this has not led to a decline in demand for suburban mall space as seen from the near full occupancy of Seletar Mall (99.6%) and OneKM (over 90.0%) which opened in November 2014. We observe that demand for suburban retail space continues to be led by supply and that retail space is becoming increasingly diversified.