Prime suburban rents dip to $28.90 psf/month in Q2 2011

The retail leasing market remained active underpinned by stable economic growth, low unemployment rate and healthy consumer spending. We are seeing more new-to-market labels such as Aeropostale and Smiggles as well as rapid expansion by recent entrants like Garrett and Candylicious within the Orchard Road micromarket. 

The monthly average rent for Prime Orchard Road space remained at $30.10 psf/month in Q2 2011, unchanged from the previous quarter. On the whole, Prime Orchard Road rents contracted marginally by 0.5% in H1 2011. Prime Suburban rents dipped to $28.90 psf/month in Q2 2011 from $29.10 psf/month in the previous quarter, possibly due to competition from imminent supply. For the first half of 2011, Prime Suburban rents declined by 0.7%.

The government has been ensuring that a steady flow of retail supply pipeline is made available in the suburban and decentralised regions. In Q2 2011, three Government Land Sales parcels were awarded at Paya Lebar, Jurong Gateway and Hillview Avenue. These sites could possibly yield about 500,000 sf of retail space collectively in 2013 and beyond.

In addition, under the GLS Programme H2 2011 announced in June, a second commercial parcel at Paya Lebar will be launched under the confirmed list and a 0.66-ha white site near the Novena MRT station was listed on the reserve list. Nearly 960,000-sf of commercial space could materialise should these two sites be successfully awarded.

CBRE estimates that confirmed retail supply totals about 4.3 million sf in the next four years and beyond. Of which, 13.2% or 566,000 sf will be located in Orchard Road – a quantum that is less than the total NLA of the recently completed nex mall. The bulk or 55.2% of retail supply will be completing in the suburbs.

Notably, some 1.2 million sf will be coming up within the 1-km radius range from the Jurong East
MRT station by 2015 – from Lend Lease’s project, CapitaLand’s Boon Lay Way project and JCube as well as ancillary retail space within the Jurong Hospital. This would effectively boost the private retail stock in the Jurong East area from about 900,000 sf currently to 2.1 million sf, reflecting an increase of 132.0%.

For comparison, Tampines Central in the east has about 1.1 million sf of mall space. It may be timely for the government to take note that the 10-year (2001-2010) take-up for retail space islandwide averaged 352,000 sf per annum and as such, to adjust the supply flow accordingly.

Letty Lee, Director, Retail Services said "While CBRE is positive about the eventual take-up rate at Jurong Gateway, given that retail demand is somewhat supply-led locally, we do have concerns about pressures on suburban rents given the increase in supply. Nonetheless, well-managed malls and necessity trades should continue to flourish. Retailers could also take the opportunity to expand their retail network.