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Singapore retail now ‘a tenant’s market’

Singapore retail is now “a tenant’s market”, realtors warn in the wake of official data showing further decline in boath rental rates and occupancy levels.

According to URA data out today (April 22), retail rents fell by 1.9 per cent in the first quarter of 2016, following a full year decline of 4.1 per cent in 2015. That’s the fifth consecutive quarter in which a decline has been recorded, and the latest figure is higher than the 1.3 per cent of the preceding three months.

For retail space in the Central Area (which includes the Downtown Core, Orchard and Rest of Central Area), the rental index was down 2.1 per cent quarter-on-quarter.

Occupancy rates also dipped, falling by 0.1 percentage point quarter-on-quarter to 92.7 per cent in the three months to March 31.

In the Central Region, vacancies were up at a five-year high of 8.7 per cent by March 31, up from 8 per cent at the end of December. In the key orchard Planning Area, the occupancy rate dropped by 1.2-percentage points quarter-on-quarter to a five-year high of 8.8 per cent.

“With a subdued retail landscape, landlords are placing greater emphasis on maintaining occupancy levels, more so than maintaining rental values in this challenging period,” commented Lee Na Jia, regional head of research with DTZ.

“Should landlords be inflexible during rental negotiations, tenants can go elsewhere especially with the relatively large pipeline supply coming on-stream [215,000 sqm of GFA in the middle six months of 2016]. At this moment in time, it can be considered a tenant’s market as they will have more choices,” said Lee.

“Moreover, declining retail sales, competition from eCommerce and rising operating costs also work against brick-and-mortar retailers. If businesses underperform, they exit the market.”

Retailers who have recently announced their withdrawal from Singapore include Smoothie King, fashion chain New Look and furniture store Iwannagohome.

Anthea To, senior associate director of research and advisory with Colliers International, said the continued easing of retail rents is unsurprising, as leasing momentum slowed and vacancies rose.

“By and large, retailers remained cautious on their real estate requirements in the first quarter of 2016, amid growing economic uncertainties.”

She noted a 32.4 per cent drop in the number of leasing deals being struck in the last quarter, according to details sourced from URA Realis – to 1725 transactions. That’s the lowest quarterly number since the second three months of 2012.

Bleak outlook

Anthea To fears the current economic headwinds might continue to erode consumer confidence in turn leading to a further reduction in discretionary spending in the city state as shoppers fear pay cuts or job losses.

“Given retailers’ expected cost-conscious stance, landlords would also be more realistic on rental expectations for the rest of 2016. This would weigh down on retail rents in the coming quarters.”

To expects retailers to respond to the depressed retail market with store network consolidation, greater focuses on eCommerce and customer engagement in-store, and new products, trying to keep their brick-and-mortar stores relevant to an increasingly digital-savvy market.

“However, not all retailers are focusing on the digital world. Major retail brands are still committed in physical store expansion which allows them to offer more products, services and new shopping experiences under one roof,” said To.

“While rents in the Central Area are on a downward trend and are under pressure to fall further, some brands are taking the opportunity to optimise their store portfolios and open new flagship stores to strengthen their branding.”

Colliers expects retail demand will continue to be coming from international lifestyle and fashion brands showing strong interest for flagship and new concept stores, and local players in sectors such as health and beauty, as well as leisure and personal goods.

Lee Na Jia concluded that Singapore landlords recognise the current market challenges and are more inclined to lowering rental reversion rates to retain tenants. Older malls are also constantly undergoing rejuvenation (such as changing their tenant mix and external facades) to keep up with competition from the new malls.

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