Singapore retail rents decline in Q1, vacancy eases to 8.5%: URA

RENTALS of retail space in Singapore's central region slid by 4.4 per cent quarter-on-quarter in the first quarter of this year, albeit moderating from the decline of 5.2 per cent in the prior quarter.

Analysts expect the decline in retail rents to moderate further this year as vaccinations pave the way for the easing of safe distancing measures and the eventual lifting of border curbs.

CBRE Research highlighted that the rental index for the central region has slumped 18.4 per cent since the start of 2020, when the pandemic first took hold. But the real estate consultancy also pointed out that performance has varied, with the suburban segment proving resilient as some prime spaces still racked up rental growth.

Angelia Phua, consulting director (research and consultancy) at JLL, said that the rollout of vaccinations in Singapore, together with the Phase 3 re-opening, has helped the challenged retail market. She added: "This supported occupier demand and moderated the retail rental decline in Q1 2021."

The data released by the Urban Redevelopment Authority (URA) also showed that prices of retail space in the central region dropped by 3.2 per cent, accelerating from a 2.1 per cent decrease in the previous quarter.

Analysts noted that retail in the fringe area performed better than the central area, which saw prices and rents falling 5.8 per cent and 4.8 per cent quarter-on-quarter respectively owing to the ongoing border closures and prevalence of working-from-home (WFH). On the other hand, retail prices in the fringe went up 1.6 per cent while rents eased 1.3 per cent.

Island-wide, there was a total supply of 428,000 square metres (sq m) gross floor area of retail space from projects in the pipeline, compared with 426,000 sq m in the prior quarter.

The amount of occupied retail space went up by 28,000 sq m of net lettable area in Q1 2021, compared with an increase of 24,000 sq m in the previous quarter. The stock of retail space increased by 10,000 sq m in Q1 2021, reversing from a decrease of 26,000 sq m in the prior quarter.

As a result, the islandwide vacancy rate of retail space eased to 8.5 per cent at the end of the first quarter, from 8.8 per cent previously.

Cushman & Wakefield's head of research (Singapore) Wong Xian Yang noted that vacancy rates in Orchard held steady at 11.6 per cent, in a nod to its positioning as Singapore's iconic shopping belt. "In fact, retailers are still taking up space in Orchard despite the dearth of tourists," he said, pointing to fashion retailer Love, Bonito which opened a 5,600 sq ft flagship outlet at ION Orchard.

On the other hand, "vacancy rates in the downtown core continued to rise to a record high since Q3 2017 to 11.7 per cent, reflecting the impact of flexible working that has led to lower footfall in the CBD," Mr Wong added. He expects the vacancy rates in the downtown core and central area to improve as more employees go back to work.

Leonard Tay, head of research at Knight Frank Singapore, said: "Moving forward, with work-from-home no longer the default and workplace capacity increased to 75 per cent, footfall in the CBD should rise and boost retail sales."

He added: "As such, rental declines are easing, pointing to a potential bottoming out sometime in the coming months, led by malls in the city fringe and suburban areas."

Ms Phua also expects the decline in retail rents to moderate this year, given that mass vaccinations, the further easing of safe-distancing measures and the eventual lifting of travel restrictions should give retail sales a lift. "Opportunistic retailers with a medium- to long-term perspective" could also seize this opportunity to expand, which could "support and stabilise rents in H2 2021," she said.

Still, even as the recovering economy bolsters retail sales, the sector will still have to contend with other headwinds, such as competition from e-commerce and labour woes, which will slow the recovery, CBRE warned.