Retail rents tipped to remain flat in 2020

Easing of new supply pipeline in 2020-2024 could buoy rents.

Retail rents are expected to be relatively stable in 2020 with the easing of new supply pipeline over 2020-2024 offsetting the fragile sentiment on the market, according to a report from Colliers International.

Retail sales excluding motor vehicles declined 1.2% YoY for the whole of 2019. This is even expected to remain weak in 2020 as the COVID-19 outbreak could dampen consumer sentiment and delay a recovery, said Colliers’ head of research for Singapore, Tricia Song.

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However, new supply is projected to ease significantly and stay tight in 2020, at 0.3% of total stock versus 10-year historical average of 1.4%. This is also expected to be the case throughout 2020-2024, at 0.5% of total.

Further, the new supply is mostly concentrated in suburban and fringe areas, where there have been well-defined population catchments. “This should help support occupancies in the retail market going forward,” the report stated.

In addition, rents do not usually mirror retail sales volatility, as tenants typically sign two-year leases where rents are locked in during the period.

In the longer term, Orchard Road prime rents are expected to lead a gradual recovery, with potential boost from Orchard Road rejuvenation plans, and a recovery in visitor arrivals and tourism receipts.

Retail rents in the central region rose 4.7% HoH. Ground-floor rents on Orchard Road edged up 0.1% HoH in H2 2019 to $40.65 psf per month, whilst that of regional centres remained flat at $33.60 psf per month.

For the full year, rents fell 1.3% YoY for Orchard and stayed flat for regional centres.

Despite large completions in 2019, island-wide retail vacancy dipped 1ppt YoY to 7.5% as of end-2019, driven by higher net absorption likely boosted by the good takeup at Jewel at Changi Airport, Funan and Paya Lebar Quarter Mall.