Retail sector in better shape than a year ago, say market watchers
This is despite rents in the central region falling 1.1% in Q4, a bigger drop than the 0.4 per cent q-o-q decrease in Q3 2022
OFFICIAL data shows a bigger drop in Singapore retail rents in the fourth quarter of last year than in the preceding quarter, but market observers say that although landlords are collecting less rent, the retail sector is in a much better place than it was a year ago.
As Knight Frank Singapore’s head of Singapore research, Leonard Tay, said: “2022 represented a pivotal easing of pandemic restrictions, such that retailers and F&B operators could begin to gear up operations with pre-pandemic normalcy in view.”
He added: “The mood has changed drastically from a year ago, as net take-up of island-wide retail space increased by 710,417 sq ft in Q4 2022, taking the full-year 2022 tally to positive 990,279 sq ft. The net take-up was positive 1.1 million sq ft in 2021, but negative 1.7 million sq ft in 2020,” he added.
Data from the Urban Redevelopment Authority (URA) released on Friday (Jan 27) shows that retail rents in Singapore’s central region fell 1.1 per cent in the fourth quarter of last year over the previous quarter. This is a bigger drop than the 0.4 per cent quarter-on-quarter decrease in Q3 2022.
For the whole of 2022, the Urban Redevelopment Authority’s (URA) rental index for retail space in the central region decreased by 2.4 per cent, a smaller contraction than the 6.8 per cent decrease in 2021.
“The retail sector endured and has come through an extremely difficult time of unprecedented challenge, only starting to gain traction from the removal of measures from Q2 2022 onwards,” said Tay.
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According to URA’s data, the island-wide vacancy rate of retail space decreased to 7.1 per cent as at the end of Q4 2022, from 7.8 per cent at the end of the previous quarter.
Angelia Phua, consulting director in JLL Singapore’s research and consultancy department, attributed this to lower vacancy rates in the central region and outside central region, where retail vacancy rates declined 0.5 percentage point q-o-q to 8.7 per cent and 1.0 percentage point q-o-q to 4.0 per cent, respectively, in the fourth quarter of 2022. Within the central region, vacancy rates in the Orchard area fell the sharpest, by 1.1 percentage point q-o-q to 9.8 per cent in Q4 2022.
“Encouraged by the rise in shopper traffic and tourist arrivals, retailers with a longer-term perspective continued to pursue business expansions strategically. Additionally, they were particularly keen to commit to spaces to capitalise on consumer spending during the year-end festive season and the Chinese New Year this month, which further contributed to the third consecutive quarter of decline in vacancy rates islandwide,” Phua said.
She expects occupier demand to remain firm, which should continue to push overall vacancy rates down amid limited supply, while supporting rent growth of prime floor space.
“Rents of prime floor space in JLL Research’s retail-assets portfolio are expected to grow by an average of 1.5 per cent to 2.5 per cent y-o-y in 2023. The rent growth in 2023 is expected to be similar to 2022, as macroeconomic headwinds are likely to temper the upside potential.”
Lam Chern Woon of Edmund Tie sounded a note of caution, pointing to the “considerable headwinds” going forward. These include high inflation and uncertainties such as the possible emergence of new Covid variants, as well as any re-tightening of travel borders and local measures – which will continue to weigh on retail sentiment and consumer confidence, likely capping consumer spending and rental growth.
Going by URA’s latest data released on Friday, its price index for retail space in the central region shrank 2.1 per cent q-o-q in Q4 2022, after easing 3.2 per cent in the previous quarter. For the whole of 2022, prices of retail space contracted by 7.8 per cent, a bigger fall than the 4.2 per cent decline in 2021.
Phua of JLL said that notwithstanding higher yield expectations in a higher interest rate environment, rising rents should underpin prices of prime floor space in quality retail assets. This is given the favourable supply-demand fundamentals and the scarcity of tradeable retail property assets, coupled with optimism for a recovery in tourism (business and leisure) and resilient domestic consumption.
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