Prime retail rents to stagnate at $35 psf

Structural headwinds from e-commerce are blamed for retailers woes.

Despite economic growth in Singapore, prime rents and yields, which reached $35 psf per month and 4.3% respectively, are expected to stay flat, Savills Investment Manager said.

According to its 2018 outlook, despite a broader recovery in Singapore’s economy, the country’s increasing interest rate environment, elevated household debt and rising inflation mean consumers are likely to spend cautiously. “Structural headwinds from e-commerce, foreign labour restrictions and high operating costs are forcing retailers to re-examine their strategies and close underperforming stores, driving up vacancy rates. Occupier demand, however, should remain, especially for well-managed regional shopping centres near or integrated with subway stations,” the firm said.

Savills IM noted that shopping centres in secondary locations and strata-titled shopping centres – where ownership is divided into individual units – will likely continue to suffer, underpinning further rental declines in 2018. “Be cautious of prime retail in Singapore, as leasing demand will be tempered by stagnant consumption growth, structural challenges from e-commerce and supply risks through 2019.”

As a resolve, Savills IM said that retail market focus should be on neighbourhood regional shopping centres that are near major transportation nodes and are more defensive due to their non-discretionary trade.

The retail rents problem is also present outside prime properties. The growth of online shopping led to rising vacancy rates and lower retail rents in the past few years. The vacancy rate of island-wide retail space has gradually risen from 4.5% in 4Q13 to 8.1% in Q2.

The bleak rentals for Singapore's retail sector are expected to remain weak until 2021. Retailers also face margin pressures from the combined challenges of weaker retail spending and labour costs.

On a positive note, according to the Singapore Tourism Board, tourism growth helped boost retail sales in H1 2017.