Retail property sector will continue to soften in 2017

Rents are predicted to dip 0.5%-1% for the whole year.

In its quarterly report on real estate, Colliers International noted that the retail sector continues to face structural challenges this 2017 despite the economy picking up during the last quarter.

According to the rental records captured by the Urban Redevelopment Authority’s Real Estate Information System, there was a total of 1,890 leasing deals in Q1 2017. This is down by 27.08% QoQ and 6.0% YoY. Island wide vacancy rate for retail space climbed to 7.7% from 7.5% in the last quarter. This was worse compared to the revised 1.6% QoQ increase in leasing volume in Q4 2016.

Though latest available figures showed a growth of 1.9% YoY in tourist arrivals, retail sales index at constant prices declined 4.6% YoY. Colliers said that this is probably due to the fact that the Chinese New Year fell in January 2017 compared with February of the last year.

The improved economic performance in Q4 2016 has yet to translate to a positive sentiment in the retail sector. Retail sales have declined consecutively for the past three years because of structural shifts in consumer spending patterns, coupled with a combination of an increased supply and reduced demand.

“We foresee the retail property sector will continue to soften in 2017 across all locations albeit at a slower rate than in 2016,” Colliers said in its report. Prime rents at Orchard Road have eased 0.2% QoQ in Q1 2017.

Consolidation, omnichannel retailing, new product offerings, and retailing concepts are expected to be recurring themes in 2017. Prime retail rents are expected to ease during the year, faring better on limited supply and upgrading demand.

Chloe, a French luxury brand, recently opened its very own standalone boutique at Marina Bay Sands. Brands from China are making their way to Singapore seeing it as a launchpad to other Southeast Asian nations such as Malaysia, Thailand, and Indonesia. Streetwear brand Hotwind and fashion brand Urban Revivo opened their first overseas stores in Singapore.

“We expect to see polarisation in demand of spaces. Prime spaces in Orchard Road is expected to see higher demand while the less popular malls will experience higher vacancies,” Colliers mentioned on its report.