Orchard Road rents to slip 3% in 2012

On the other hand, prime suburban rents are expected to continue on their upward trajectory, rising by 3%.

Defying recession fears, the retail market continues to heat up this quarter. Orchard Road saw the addition of another luxury mall, Scotts Square, featuring new-to-market international retailers such as Leonard Paris and Michael Kors, says Savills’ report. Joining the ranks of these retailers are Abercrombie & Fitch in Knightsbridge and American denim label Wrangler in ION Orchard.

Singapore is the location of choice for international retailers looking for a presence in Southeast Asia. Several of these retailers are understood to be still on the hunt for prime space on Orchard Road. However, the dwindling supply of available space has put their plans on hold. Similarly, local retailers looking to expand into well-located suburban malls are faced with a tight supply situation. Prime Orchard and suburban rents inched up 1% to S$35.5 and S$30.8 per sq ft per month respectively in Q4/2011.

Price growth is increasingly reined-in by weaker sentiment, although downside risks are mitigated by healthy leasing demand. Prime capital values on Orchard Road rose by a modest 0.5% in Q4/2011 to average S$7,350 per sq ft, slower than the 3% growth recorded in the preceding quarter.

With market uncertainties shrouding the retail market, we expect rents of prime space on Orchard Road to stabilise, although off-pitch space may dip 5%, leading to an average decline of 3%. Prime suburban rents are expected to continue on their upward trajectory, rising by around 3%, underpinned by population growth and stable shopper traffic. The sales and investment market, however, is likely to remain muted and we expect capital values to stay flat next year.