Outlook remains challenging for retail space even as rental decline slows

Singapore

THE rental decline for retail space in Singapore's central region slowed to 0.5 per cent in the second quarter over the previous quarter.

This compared with the 4.4 per cent quarter-on-quarter drop in Q1 2021.

Despite this encouraging statistic from the Urban Redevelopment Authority's latest property market data, observers say that the outlook remains challenging, with secondary flare-ups in Covid infections expected to continue creating setbacks for retailers and their landlords for the rest of the year.

The second-quarter drop in the rental index for retail space in the central region marked the sixth consecutive quarter of decline.

On the bright side, the future supply of retail space remains manageable compared with historical levels, says CBRE's head of research for Southeast Asia, Tricia Song. "Furthermore, as the demand for prime spaces (the best-located units in any mall) outstrips their availability, this could ease the downward pressure on rents moving forward," she added.

URA's data shows that notwithstanding the moderation in rental decline in Q2 2021, the retail vacancy rate in the central region edged up 0.2 percentage point q-o-q to 10.4 per cent in Q2 2021, following two consecutive quarters of decline.

"This is likely due to the closure and consolidation of non-viable businesses following the implementation of tightened Phase 2 (Heightened Alert) safe-management measures in the second quarter," said JLL Singapore's consulting director for research and consultancy, Angelia Phua.

"The rise in the central region vacancy rate was led by higher vacancies in Orchard, Downtown Core and Rest of Central Area, where the lack of tourism foot traffic and weak support from the working population (due to the tightened policy of work-from-home default during P2(HA) severely impacted business viability," she added.

URA's data showed that the islandwide vacancy rate of retail space stood at 8.5 per cent as at end-Q2 2021, unchanged from the previous quarter.

Knight Frank Singapore's research head Leonard Tay highlighted that despite the regularly interrupted footfall to retail stores and a slowdown in sales growth due to the Covid-19 restrictions, "the spirit of entrepreneurship in the retail industry does not seem to have wavered".

The accelerated growth of e-commerce due to the pandemic has transformed the dynamics of the retail landscape with many aspiring entrepreneurs setting up retail enterprises, contributing to the take-up of retail spaces, he added.

Citing business registry statistics from Accounting and Corporate Regulatory Authority, Knight Frank said that since the end of the circuit breaker in 2020, the number of business entities formed within the retail trade and food & beverage (F&B) service activities sectors averaged at least 1,000 each month for 13 months.

"Not only has this surpassed the number of businesses that shuttered their operations in the same period, but this growth post-circuit breaker also exceeded the monthly average of retail-related business formations between 2017 and 2019 before the pandemic," said Mr Tay.

The burgeoning growth of retail businesses is observed to be accompanied by greater diversity as non-traditional activity-based retail can now be found alongside traditional stores. Examples include cooking classes, fitness and recreational-related activities, as well as experiential workshops.

"The rise of such entrepreneurship serves as an underlying silver lining to the retail market," said Mr Tay.

URA's price index for retail space in the central region eased 2.8 per cent quarter on quarter in Q2 2021.This follows a drop of 3.2 per cent in Q1 2021.

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