Suburban malls' resiliency to market shocks wanes

3Q monthly rents sliding 2% QoQ has a bigger implication.

In the third quarter, the substantial decline of 2.0% QoQ in suburban mall rents contrasts sharply to those along Orchard Road. 

Savills cautions that if, for another quarter or two, rents in the latter area continue to perform relatively better than the former, it will debunk the myth that many have subscribed to, namely suburban malls are more resilient to the downturn given that they have a captive market in the heartlands.

Prime monthly rents on Orchard Road held firm at S$29.90 per sq ft from the preceding quarter, while suburban monthly rents slid 2.0% quarter-on-quarter (QoQ) to S$28.00 per sq ft in Q3/2016.

According to Savills, the drop in monthly rents at suburban malls was attributed to the subdued economic condition, concerns among consumers, and a general weakening of the retail scene.

It adds that the rents for suburban malls were also likely to be dampened by the additional 431,000 sq ft of new retail stock in the quarter.

Suburban vacancies have also gone up by 1.0 ppt QoQ to 7% in Q3/2016, reaching the highest vacancy level in terms of URA’s time series on this dataset.

Moving forward, Savills expect gross asking rents for both prime Orchard Road and Suburban malls to soften equally, by 7.5 to 10.0% in 2017 on a YoY basis.