How Singapore's labor crunch could derail retailers' expansion plans

Rising costs pose a major problem.

According to DBS, while low unemployment and moderating inflation will help the retail sector to continue to hold up, rising costs as a result of labor crunch remain a key concern and this could derail expansion plans by retailers and dampen demand for retail space in the medium-term.

Here's more:

Singapore is currently undergoing an economic restructuring process that involves improving productivity and reducing reliance on foreign labor.

Hence, operating costs across the entire production value chain has risen on the back of a labor crunch.

According to Singapore Retailers Association, the retail industry could face a labor shortage of up to 40,000 by next year, while a number of retailers are already reported to be currently facing a labor crunch of 10-20% of their headcount.

According to a study done in 2012 by the Economic Survey of Singapore, the largest main business costs are cost of goods and remuneration.

Within the wholesale and retail trade, cost of goods is the largest cost component while remuneration has the largest impact on costs for the accommodation and food services, infocomm, business services and recreation, community and personal services sectors.

As the economic restructuring process intensifies, we believe business operators are likely to try to offset rising wage costs by passing it on to end-consumers or by trimming other cost components such as rent.

Hence, we believe rent growth is likely to remain positive but modest in the coming years.