Space dearth alert: Skyrocketing rents hound Orchard Road retailers

Rents have been rising since 1Q11.

Retail supply is drying up in the country’s posh shopping capital, and fears of skyrocketing rents hound its existing retailers.

According to OCBC, a lack of new projects on Orchard road is expected to push occupancy rates from 95.8% to 97.2%, which in turn will push up retail rents.

“A dearth of upcoming projects in the Orchard retail space pipeline over 2015-17 would likely set up a crunch for space over that period, in our view. From 2013-17, our base case is that occupancy rates will rise from
95.8% to 97.2%, and Orchard prime retail rents will grow at a CAGR of 2.0% p.a. to S$36.9 psf pm,” stated OCBC.

Here’s more:
The 384k sq ft of retail supply in 2014F constitutes 7% of the Orchard private retail stock and we expect this to be readily absorbed over 2014F-2015F given steady outlooks for the tourism sector and the domestic economy.

In particular, we note that the department store Metro has recently announced that it would take up the 130k sq ft vacated by Robinsons in The Centrepoint, which will significantly alleviate concerns of a short-term hike in Orchard vacancy rates

As at end 1Q14, average retail rental rates in the Orchard Road sub-market increased 3.3% YoY to S$34.2 psf per month - continuing a steady uptrend for 13 consecutive quarters since 1Q11. In addition, net absorption for 2013 came in at a strong 161k sq ft, rebounding from -21.5k sq ft in 2012, while capital values of Orchard retail space as at end 1Q14 also rose 6.7% YoY to S$7.2k psf.