Positive reading for retail property market in Q3 but risks remain

Singapore

SINGAPORE'S retail property market chalked up a sound performance in the third quarter, but the path to recovery could be bumpy given external headwinds and challenges in the retail landscape.

Rents of retail space in the central region of Singapore increased by 2.3 per cent in the third quarter, after falling 1.5 per cent in the previous quarter, according to data released by the Urban Redevelopment Authority (URA) on Friday.

The 2.3 per cent quarter-on-quarter gain is the steepest since 1Q11, Tay Huey Ying, JLL's head of research and consultancy (Singapore), said, adding that this likely came on the back of retailers' cautious optimism as tourists arrivals rose as well as their confidence in the government's various initiatives to rejuvenate the Orchard Road shopping belt.

The higher rental index may have come on the back of the strong performance of newly completed projects with good locations near key transport nodes as well as some strategically located malls which are still seeing positive rental reversions, said Desmond Sim, CBRE's head of research (South-east Asia). He added: "That said, CBRE believes that the retail spaces in secondary locations and corridors remain challenged."

For the third quarter, JLL's research showed there was demand for retail spaces from both new-to-market and expanding brands, largely from the food and beverage sector.

These included bubble tea chain Chicha San Chen while activity-based retailers are also still keen to set up shop. Nonetheless, some F&B brands are also shutting their stores, with department store Metro and Times Bookstores closing their Centrepoint branches, while theme cafes Gudetama and My Melody Café in Suntec City Mall will do so come November.

Meanwhile, URA's price index of retail space in the central region was up 1.1 per cent in Q3, versus the 0.4 per cent increase in Q2.

Tricia Song, Colliers' head of research (Singapore), said this was likely underpinned by higher investor interest and strong transaction volumes. Key transactions during the quarter included DUO Galleria, 313@Somerset, Mandarin Gallery and strata unit sales at Queensway Shopping Centre.

The islandwide vacancy rate of retail space tightened to 7.5 per cent as at the end of the third quarter, down from 7.7 per cent as at the end of the previous quarter, owing to the continued net absorption of retail space, analysts said.

Looking ahead, Mr Sim said he expects the retail industry to remain under pressure. "In light of the more subdued economic conditions, retailers will continue to grapple with lacklustre retail sales and those from poorer-performing sectors may face consolidations," he said.

"The limited upcoming supply remains the saving grace of the market and will help to support occupancy and cushion any significant decline in rents, if any."

Colliers Research estimates the average annual new supply works out to 335,000 square feet (sq ft) for 4Q2019-2023 - compared to 1.04 million sq ft over the last decade - which should help buttress occupancies in the retail market.

As at the end of Q3, there was a total supply of 288,000 square metres (sq m) gross floor area (GFA) of retail space from projects in the pipeline, down from 320,000 sq m GFA in the previous quarter.

Ms Song said: "In 2019, we expect ground floor retail rents in prime shopping centres along Orchard Road to decline marginally with weak consumer spending, while prime floor rents for (suburban) regional centres should stabilise, given a higher proportion of non-discretionary income spending."

For 2020, rents in Orchard and regional centres could recover marginally, given limited fresh supply, she added.