Prime Orchard Road retail rents get boost from tourism rebound

RETAIL rents in Singapore’s prime shopping belt continued to recover in the fourth quarter of 2022, as travel and leisure demand bounced back. 

In a report on the real estate market released on Thursday (Jan 19), Edmund Tie noted that prime first-storey retail spaces in the Orchard Road area hiked their rents 7.4 per cent to S$39.20 per square foot per month (psf/pm) in Q4 – making for the strongest year-on-year growth for the whole of 2022. 

This is also a 2.1 per cent increase from the S$38.40 psf/pm posted in the third quarter.

Rent of retail spaces in other submarkets also grew as shopping traffic returned to the city-state, although at a slower pace. Data from Edmund Tie showed that retail rent of prime first-storey retail spaces in fringe and suburban areas rose by 6.7 per cent since Q4 2021 to S$33.10 psf/pm. Quarter on quarter, it grew by 1.5 per cent. 

Meanwhile, rent in other city areas went up 3.7 per cent year on year to S$19.20 psf/pm and 1 per cent quarter on quarter.

Data from other property consultancies point to a similar uptrend, fuelled by a robust recovery in the island’s tourism sector. 

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According to Knight Frank Singapore’s research team, prime retail rents island-wide averaged at S$26.10 psf/pm, a 1.7 per cent quarter-on-quarter growth in Q4 2022 and a total increase of 2.6 per cent for the entire year. 

Within Singapore’s central region, the Orchard area experienced the largest growth of 2.2 per cent quarter on quarter to S$29.10 psf/pm and an increase of 3.1 per cent since Q4 2021.

In comparison, average rent in the Marina Centre, City Hall and Bugis areas chalked up a 1.8 per cent rise to S$23.90 psf/pm quarter on quarter and a 2.6 per cent increase for the year. 

Said Ethan Hsu, head of retail at Knight Frank Singapore: “Despite many SIngaporeans travelling out of the city for the holidays, the uptick in local consumers and foreign visitors palpably signified global accord of a return to normalcy in an endemic world, ushering in a new wave of confidence for both retailers and landlords.”

A recent CBRE report highlighted that leasing activity had also picked up in Q4 2022, driven mostly by food and beverage (F&B) operators, particularly in locations near or within hotels seeking to capitalise on increased tourist traffic. 

Jewellery and watch stores also increased their presence in Q4 as sales continued to grow, fuelled in part by revenge consumption and higher savings during the pandemic, noted CBRE in its report. 

The sector also saw several new-to-market brands establish a foothold in Singapore. This includes Anglo-French luxury fragrance house Creed at Raffles City, Cafe Kitsune by French-Japanese lifestyle brand Maison Kitsune at Capitol Singapore, as well as South Korean convenience store chain Emart24 at Jurong Point and Nex.

CBRE also pointed out that various local brands continued to expand beyond Singapore’s shores – including fashion house Charles & Keith, furniture retailer Castlery, and F&B chain operator Paradise Group. 

“As such, landlords and owners of retail space should be increasingly more receptive and sanguine in leasing out prime mall spaces to further encourage and support the growth of these home-grown brands,” said the CBRE team. 

Lam Chern Woon, Edmund Tie’s head of research and consulting, expects demand for retail space to expand as the sector continues its recovery. 

“With the bulk of the supply pipeline between 2022 and 2025 targeted to come on-stream in 2023, including The Woodleigh Mall and One Holland Village shops, the supply-demand dynamics are expected to be balanced in 2023,” said Lam. 

Still, he noted that there are “considerable headwinds” in the coming year, which might reduce consumer spending and cap rental growth.

CBRE, too, cautioned that retailers might face some challenges in the shorter term, such as manpower shortages, higher operating costs, competition with e-commerce brands, and the hike in goods and services tax. 

Even so, Hsu from Knight Frank highlighted that the retail sector remains in a “much-better position”, especially when compared to during the pandemic. 

“So long as there are no size limits to gatherings and quarantine requirements for cross-border arrivals, prime rents of retail spaces are likely to grow between 3 to 5 per cent for the whole of 2023, with the prime shopping belt Orchard Road leading the recovery,” he said.