Retail property sector growth to be ‘measured and slow’ for the rest of the year

Rising rents and operating costs have deterred retailers from expanding.

Singapore remains a good location for international brands but rising costs are hindering them from expanding, with some compelling others into consolidation instead, Leonard Tay, Head, Research at Knight Frank Singapore said.

In a report by URA, prices of retail space decreased by 1.2% in the second quarter compared to the 1.8% increase in Q1. Rentals of retails space were flat, following the 0.4% decrease in the previous quarter.

“Despite the Taylor Swift effect on tourism and spillover effects into the retail space, the stagnant retail rents reflect the challenging operating environment for the retail sector with costs constantly on the rise. Operating conditions for retailers in Singapore have been and are becoming more challenging, to the point that many retailers and F&B establishments have been observed to be stifled by increasing rents and operating costs (i.e., labour, cost of supplies, etc.) that erode much of their profit margins,” Tay said.

Occupancy levels, however, showed a slight increase to 93.4% in Q2 2024 from 93.3% in the previous quarter. Tay said this is an indicator that Singapore continues to be a good location for international brands to set up shop and expand. 

“However, despite retail rents and occupancy levels being stable and that are expected to continue growing with more international brands locating and/or expanding operations in Singapore, the growth will be measured and likely at a slower pace for the rest of 2024. As it stands, rising rents and operating costs have begun to deter some retailers from expansions, and might soon threaten to compel others into consolidation instead,” Tay said.