Prime Orchard area retail rents on the rise, outpacing other areas despite headwinds

RETAIL rents recorded the strongest quarter-on-quarter growth in Singapore’s prime shopping belt, gaining 2.9 per cent to average S$38.40 per square foot (psf) a month for Orchard/Scotts Road ground floor space in Q3 this year, data from Edmund Tie on Monday (Oct 17) showed.

Rents in other submarkets also rose as shopper traffic returned, though more slowly. Average monthly retail rents in other city areas chalked up a 1.1 per cent increase to S$19 psf, while fringe/suburban area rents went up 2.2 per cent to S$32.60 psf, going by Edmund Tie data.

Data from CBRE and Cushman & Wakefield also pointed to a similarly upbeat retail market, driven by a strong recovery in Singapore’s tourism sector.

CBRE research put average prime floor rent in Orchard Road at S$34.45 psf/mth, up 0.7 per cent quarter on quarter, though still 10.9 per cent below pre-Covid levels. The firm added that “the suburban market continued to outperform due to its resilient local catchment, coupled with extremely limited availability”.

A recent Cushman & Wakefield report also noted that while prime retail rents in Orchard and other city areas are still some way below their pre-pandemic levels (5-10 per cent below rents in 2019), suburban prime retail rents are only less than 1 per cent from their 2019 levels.

Analysts agreed that retail rents will continue on their uptrend in the coming months.

“The retail sector continues to shine, due to increased footfall from tourists on the back of travel restrictions ease, and Singapore is back in action hosting globally recognised events, such as the recent Singapore Grand Prix which saw record breaking attendance,” said Lam Chern Woon, senior director of research and consulting at Edmund Tie.

“The lack of new retail space in Orchard and other city areas will also support retail rental growth, albeit retail recovery remains weighed down by hybrid work and the current dearth of Chinese tourists,” wrote Cushman & Wakefield analysts in their report, noting that the area remained a go-to expansion destination for established foreign and domestic brands alike.

CBRE analysts pointed to improved mobility and a below-historical average new retail supply in the next few years, to forecast that overall retail rents would continue recovering for the rest of 2022 and into 2023.  

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Nearly 1.5 million sq ft of new retail space is expected to be completed from 2022 to 2025, according to Edmund Tie, with the bulk – about 70 per cent – coming onstream in fringe and suburban areas .

Indeed, the empty spot left behind by the departure of Robinsons at both The Heeren and Raffles City have been filled quickly. Its spot at The Heeren is now occupied by furniture chain Courts, while its previous store at Raffles City has been taken over by various upscale brands.

“Leasing activity started to pick up in Q3 2022., with demand primarily driven by F&B (food and beverage) operators,” CBRE said in its Q3 report. The sector also saw local brands opening their first physical stores, testing the waters in secondary corridors of prime malls.

Sportswear retailer Kydra, as well as online fashion brands Neonmello and Young Hungry Free, set up shop at Takashimaya, Plaza Singapura and Funan respectively this quarter.

Edmund Tie’s Lam believes that with the continued rejuvenation of older retail assets and introduction of more experiential retail, such as plans for a sports facility in Orchard Road and redeveloping *Scape in Orchard and CQ @ Clarke Quay, the outlook for retail rents remains favourable.

CBRE noted that retail indicators continued to improve as border and domestic Covid restrictions eased. Retail sales (excluding motor vehicles) for July grew by 14.6 per cent year-on-year, while August sales were 13.9 per cent higher year-on-year, on the back of higher sales in the wearing apparel & footwear industry, said CBRE.

While landlords may have been able to raise rents in the last quarter, analysts flagged several challenges still ahead. Edmund Tie’s Lam cautioned of a cap on spending, given economic headwinds from rising interest and inflation rates.

These concerns were similarly echoed by CBRE analysts, who were less optimistic on near-term growth as they believe retailers still face manpower shortage, higher operating costs, ongoing competition from e-commerce, a potential economic slowdown and an impending Goods and Services Tax (GST) hike in 2023.

F&B establishments remain the largest driver of physical retail space, dominating close to half of new store openings in Singapore’s prime malls in the year to date, said Cushman & Wakefield. Notable expansions of at least three outlets this year so far include Hong Kong fast casual dining chain TamJai SamGor and casual Ma La cuisine eatery Gong Yuan Ma La Tang, but “F&B demand continues to face headwinds from rising operating costs and disruptions in global food supply chains”.