Singapore retail rents rise for the first time in three years

Retail sales in Singapore rose by 7.4%, resulting in an average rental increase of 3.2% in 3Q11.

According to the CBRE Asia Pacific Prime Rental Index, retail sales in Singapore rose by 7.4 per cent year-on-year in August and demand for retail space remained healthy, resulting in an average rental increase of 3.2 per cent quarter-on-quarter, the first rise recorded for almost three years. Fast fashion retailers accounted for the bulk of new entrants and the period saw Aeropostale and H&M open their first stores in the city. Retailers in the F&B sector expanded during the period. Around 657,000 sf of new retail space will be completed in 2012, most of which will be in the suburbs, with little new supply scheduled to be completed along Orchard Road. Average prime retail rents stood at S$31.60 psf/month last quarter.

In other parts of Asia Pacific, retail sales growth remained healthy in most parts during the period, rising by 7.6 per cent year-on-year in September (excluding Japan). However, the rate of growth began to slow as consumers across the region turned slightly more cautious amid the weakening global economic outlook. The near term economic prospects for the region nevertheless remain positive, although mild moderation in growth is expected in the months ahead and much hinges on the performance of the United States and Eurozone.

The third quarter saw further expansion by domestic and international retailers in most markets despite slowing retail sales growth and weakening consumer confidence. International fast fashion retailers continued to expand and enter new markets, whilst firms in the luxury goods segment were particularly active in Greater China, Japan and the Pacific. Retailers in the watch and jewellery, electronics and F&B sectors were also in expansion mode.

Sebastian Skiff, Executive Director, CBRE Retail - Asia, said, “Several major new projects, notably in Beijing and Guangzhou were completed during the third quarter. Many Asian retail markets continue to witness a construction boom and a large quantum of additional retail supply is scheduled to be completed over the next couple of years. Nevertheless, the bulk of new stock in the development pipeline across Asia is situated in fringe locations or emerging retail areas, and thus the availability of quality and well located retail stock in prime areas will remain limited in key markets going forward.”

Retail rents in Asia will continue to rise going forward as domestic consumption remains firm and international retailers expand. The situation in the Pacific is also broadly positive in light of the low vacancy in key locations and sustained demand from overseas brands. Rental growth across the combined region will inevitably slow in forthcoming quarters, however, as the deteriorating global economic outlook sees consumers begin to cut back on discretionary spending, which may result in selected retailers adopting a more cautious attitude towards expansion.