Singapore rents dip, says DTZ Research

First-storey rents throughout SIngapore have fallen by 1.2 per cent to about $30.50 a square foot, according to the DTZ Research South-east Asia fourth-quarter report on the retail sector.

This is the third consecutive decline since the second quarter of last year, says the report, released today. For the whole of 2015, average first-storey rents fell at a faster pace (5.9 per cent) compared to the 0.3 per cent decline the previous year. The fall was mainly attributed to weakened consumer sentiments amid uncertain global economic conditions.

Orchard Road rents were the most resilient. Average first-storey rents in Orchard and Scotts Roads saw a more gentle decline than other areas, falling by 1 per cent quarter-on-quarter and 5 per cent year on year to $38.05 a sq ft in the fourth quarter. The Orchard/Scotts Road rates were buoyant because of the likelihood of no new completions for the next four years. Only pockets of new retail spaces will be added through asset enhancement initiatives and other mixed-use projects.

Average first-storey rents in suburban areas were relatively resilient, says the report, dipping by 1.2 per cent q-o-q and 5.7 per cent y-o-y to $30.70 a sq ft in the same period. In contrast, average first-storey rents in the other city areas had a greater decline – 1.4 per cent and 6.9 per cent to about $21.80 a sq ft, mainly because of the dependence on the weekday office crowd for sales volume.

Although islandwide rental values have softened over the past year, occupancy rates stayed healthy for the first three quarters of last year as landlords become more flexible. In fact, according to the latest Urban Redevelopment Authority statistics, overall retail occupancy inched up 0.3 per cent to 92.1 per cent in the third quarter. Occupancy rates in Orchard/Scotts Road were unchanged at 92 per cent q-o-q in Q3, while rates edged up in the other city and suburban areas by 0.6 per cent q-o-q and 0.1 per cent y-o-y to 90.6 and 93.1 per cent respectively.

Looking forward, says the DTZ report, expected completions this year coupled with consumer sentiment are expected to exert further downward pressure on rental values, especially in the other city areas. About 743,000 sq ft of net lettable area (NLA) of retail space (or 60 per cent of the 1.2 million sq ft of NLA in this year’s pipeline) will be added to the existing stock of retail space in other city areas. This is more than double the annual net demand (302,000 sq ft) for retail space in other city areas between 2009 and 2014. Retail developments heading for completion in the other city areas include OUE Downtown Gallery, The Heart at Marina One and Tanjong Pagar Centre, each a mixed-use development comprising more than 100,000 sq ft of retail NLA.

“While the pending completions will pressure retail rents in other city areas to fall, the decline is likely to be temporary,” says DTZ director of research Dr Lee Nai Jia. “We anticipate retail rents will recover when the residential components in the mixed-use developments receive their temporary occupation permits. The increase in resident population in the other city areas will support the retail trade.”

Despite many retail completions lined up for the new year, 2015 also saw the exit of such brands as Goods of Desire, Lowrys Farm and M)phosis because of the challenging operating environment within the retail sector. Additionally, big players like Isetan, FJ Benjamin and Metro also reported disappointing sales figures in the same period. In a bid to revitalise the retail scene, landlords have collaborated with online retailers such as Zalora and Love Bonito via pop-up stores to reignite consumer interest. During the year, brick-and-mortar retailers extended their market outreach by adopting omnichannel marketing amid competition from e-commerce.

“With the softer market, landlords have certainly become more open to exploring new retail concepts,” says DTZ director of retail Anna Lee. “As landlords become more flexible, brick-and-mortar retailers have more leeway to experiment with new retail offerings to improve the overall shopping experience.”

Anna Lee cites the launch of Café&Meal Muji in September at Paragon, next to its Muji store. After opening the F&B outlet, Muji recorded a y-o-y increase of about 40 per cent in its store sales. At the same time, lifestyle concept store Latulle also introduced a full-service cafe.

You have 7 articles remaining. Unlock 15 free articles a month, it’s free.