Prime retail rentals remain unchanged in Q1 2011:DTZ

Rental values for prime first-storey retail space islandwide were unchanged as the industry continues to grapple with the demand-supply dynamics that have yet to settle.

According to DTZ Research, after moving up marginally in 2010, rents along Orchard/Scotts Road were unchanged quarter-on-quarter in Q1 2011. The average gross fixed rent of prime first-storey space in the Orchard/Scotts Road area remained at $39.80 per sq ft per month in Q1 2011.

The stock of retail space in Orchard/Scotts Road had increased by more than 20% from 2008 to 2010, more than the islandwide retail stock increase of 16% over the same period. Due to the economic downturn in 2009 and the significant new supply in the last two years, average rents in Orchard/Scotts Road are still below the $41.80 per sq ft per month at end 2008.

The silver lining is that little new supply is expected in 2011 and 2012 along the premier shopping street. Scotts Square is the only mall expected to be completed this year. The nextmajor malls are expected only in 2013 from the redevelopment of the former Specialist Centre/Phoenix Hotel/Orchard Emerald Centre and the redevelopment of Yen San Building.

“Orchard/Scotts Road is the premier shopping belt which attracts both locals and tourists. Hence major retailers will want a strategic presence here. However, with many new malls sprouting up all over the island, mall owners and retailers at Orchard/Scotts Road cannot afford to be complacent,” said Ms Chua Chor Hoon, Head of DTZ South East Asia Research. “The limited supply in 2011 and 2012 will give the mall owners and retailers some breathing
space to review and improve their offerings to keep its edge,” she added.

Retail operations in the other city areas remain challenging, buffeted by developments in the Marina Bay area. Prime rents in the area held firm in Q1 2011, which came on the back of three quarters of consecutive declines. The average gross fixed rent of prime first-storey retail space in other city areas stood at $23.90 per sq ft per month in Q1 2011. While some malls experience high traffic and occupancy with good tenant offerings, others face turnover and vacancies particularly in the upper storeys due to poorer positioning and traffic.

Average gross fixed rent of prime first-storey retail space in the suburban malls which stood at $33.70 per sq ft per month was also unchanged in Q1 2011. While suburban malls continue to benefit from a stable catchment demand, the large amount of supply that has come on-stream as well as those in the pipeline has restrained rental increase.

The retail scene is expected to remain competitive. Some retail spending is diverted to the casinos and more consumers are shopping online, particularly among the younger group. The strong Singapore dollar will also affect tourist spending and motivate more Singaporeans to shop overseas.

“As consumers are now more well-travelled and internet savvy, malls will have to work harder to entice them to visit the malls and the retailers will have to come up with better products, services and strategies to convert the footfall into expenditure. Being in a popular mall or being next to a MRT station does not guarantee good retail sales. The high pedestrian traffic can just be passing through,” observed Ms Anna Lee, DTZ’s Associate Director (Retail).