Metro Cash & Carry

Singapore retail rents slipped during the last quarter – but experts say the outlook is not too grim.

According to Edmund Tie & Company Research, average monthly retail gross rents across the island eased by 1.2 per cent quarter-on-quarter to about $29.30 per sqft in the three months to September 30. This was 9.6 per cent lower than its peak in the first quarter of 2015, when the average monthly gross rent was about $32.40 per sqft.

“The decline was primarily due to a subdued economic growth forecast, as well as job cuts across various industries that led to weaker consumer sentiments,” the company said.

According to the Ministry of Manpower in September, the total number of workers made redundant in the second quarter of 2016 rose by 2 per cent quarter-on-quarter and 48 per cent year-on-year to 4800 workers.

Rents in the other city areas led the overall rental decline in the latest quarter, falling by 3 per cent to about $20.10 per sqft per month. This was followed by the suburban areas, with average monthly gross rents declining by 1.5 per cent to $30.60.

Orchard Rd holds firm

Retail rents in Orchard and Scotts Rd precinct, however, stayed unchanged at $37.20 per sqft, notwithstanding the slower economy and fears over the impact on tourism of the spread of the Zika virus.

“The resilience of this district was supported by the lack of new retail developments. While retailers in Orchard/Scotts Rd face strong competition for tourist dollars from regional countries, renowned global brands and local retailers are still attracted to set up shops there. The recent opening of several high-profile flagship stores in the area has further enhanced Orchard/Scotts Rd’s position as one of the top shopping attractions in South East Asia,” said Edmund Tie.

“Overall, we anticipate the decline in rents to moderate in 2017, barring any external shocks. Landlords and retailers are adapting to the challenges by integrating technology with their physical stores to manage manpower constraints and tap on the growing eCommerce market.” The company cited the upcoming OUE Downtown Gallery along Shenton Way which will introduce a 11,000 sqft “trend gallery” comprising pop-up stores and retail counters on the first-storey, and a 4000 sq ft “social kitchen” fitted with 10 cooking stations available for bookings on the third-storey.

A new F&B concept will also be introduced, whereby diners place their food orders via a mobile app. The food is prepared in a central kitchen and is subsequently placed in an assigned locker for diners to collect at a specified time. This significantly reduces the amount of leasable space required by the food establishment, as well as its reliance on manpower.

In addition, the upcoming Singapore Post Centre in 2017 and the newly revamped Funan mall in 2019 will be introducing hands-free shopping. Shoppers will be able to browse through the products in-store, purchase the product and arrange for the product to be delivered directly to their homes. Not only does this provide greater convenience for shoppers, it also allows retailers to save on storage space in their physical stores, as logistic arrangements are done in the warehouse.

“Separately, there is also a trend towards Click-to-Brick, where the shopping is done online and the merchandise is collected in the shops. Retailers that allow consumers to click-and-collect include Harvey Norman, Courts, NTUC, Decathlon, and Tangs.”

Too early to write off brick-and-mortar

Despite eCommerce gaining traction, Dr Lee Nai Jia, Edmund Tie & Company’s Southeast Asia head of research, believes it is too premature to write off the brick-and-mortar retail sector.

“In order to remain competitive, landlords and retailers are continuously looking for ways to improve their business models and remain adaptable to challenges. Many landlords and retailers are making use of big data analytics to understand the underlying purchasing psychology, which helps them to redefine their marketing strategies to better cater to their customers’ needs.

“Additionally, retailers are introducing experiential shopping and new retail concepts to increase footfall and encourage in-store sales. They offer hands-on activities for customers to experience at their physical stores. For example, Uniqlo’s SEA flagship store at Orchard Central will be reeling in Singaporean creatives and talents to hold a wide range of workshops in its three-storey flagship store. Similarly, K+ at Scotts Square and Naiise outlets at The Cathay, Orchard Gateway and Clarke Quay Central also provide dedicated spaces for workshops within their stores,” said Jia.

“While it is still too early to judge the effectiveness of experiential retail in increasing footfall and in-store sales in Singapore, the concept has worked well for some brick and mortar retailers in the US, which saw eCommerce gaining an increasing foothold in the retail industry. A case in point was the success of Whole Foods in the US, which built on its success by creating personalised rewards and in-store experiences, including cooking classes, juice and coffee bars and consultations with nutritionists.”

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