Retail sector on the road to recovery as tourism rebounds
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Ry-Anne Lim
SINGAPORE’S retail sector has turned the corner as tourism and consumer spending recovered, although some challenges may still lie ahead, say analysts.
Figures released by the Urban Redevelopment Authority on Friday (Jul 28) showed rents of retail space in the central region edged up by 0.3 per cent in the second quarter of 2023, reversing five consecutive quarters of decline.
Likewise, prime retail spaces “performed well” in the quarter, rising by 0.8 per cent quarter on quarter “as demand remained strong for such locations”, noted Tricia Song, CBRE head of research for South-east Asia and Singapore.
“Retail indicators such as the retail sales index remained positive, a testament to consumers’ spending power and tourism recovery despite the weak global economic background,” she added.
Rental growth in Q2 was largely driven by the central area, where retail rents increased by 0.4 per cent quarter on quarter, Wong Xian Yang, head of research at Cushman & Wakefield, pointed out. In comparison, rents in the fringe area inched up by just 0.1 per cent quarter on quarter.
As at the end of Q2 this year, there was a total supply of around 442,000 square metres (sq m) gross floor area of retail space from projects in the pipeline – about 8.6 per cent more than the 407,000 sq m in the previous quarter.
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Some 44,352 sq m of retail space was completed in the first half of 2023.
Islandwide, the vacancy rate of retail space reached 7.5 per cent as at the end of June, falling marginally from 7.6 per cent as at end March. The mild decrease in vacancies came as the amount of occupied retail space grew by 27,000 sq m, a contrast from the decrease of 7,000 sq m in Q1. Total retail stock rose by 18,000 sq m in Q2 this year, from the 25,000 sq m increase in the prior quarter.
Meanwhile, vacancy rates for the Orchard planning area and the central area outside Orchard were at 13.2 per cent and 9.9 per cent, respectively. This was 5.4 per cent for the rest of Singapore.
Looking ahead, analysts believe that retail rents in the central area, specifically in Orchard, could lead rental growth.
“More new-to-market and luxury brands could emerge in Orchard as they position for recovering tourism and capitalise on the growing wealth in South-east Asia,” said Wong.
Although the retail climate remains challenging – mainly owing to the economic slowdown and inflationary pressures – there is now some “light at the end of the tunnel as the tourism recovery continues”, said Edmund Tie head of research and consulting Lam Chern Woon.
For instance, Singapore welcomed around 6.3 million visitors in the first half of this year – and this positive momentum is expected to continue for the rest of the year, meeting the Singapore Tourism Board’s projected range of 12 million to 14 million arrivals for the whole of 2023, noted Angelia Phua, JLL’s consulting director for research and consultancy.
Prime first-storey rents in Orchard are therefore expected to see a 4 per cent to 5 per cent growth in 2023, while other prime retail spaces might see a rental growth of 1 per cent to 3 per cent, said Lam.
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