Recovery may be in sight for Singapore retail property market

Singapore

ALTHOUGH the prices and rents of retail properties both declined in January to March this year while occupancies worsened a tad, analysts generally remained upbeat on the sector's recovery prospects.

Edmund Tie's head of research and consulting, Lam Chern Woon, said the sector's outlook is expected to brighten, with suburban retail rents likely to lead the market recovery with an increase of about 8 per cent this year. Prime rents in Orchard and other city areas are poised for around 3 to 5 per cent growth, he added.

Knight Frank Singapore's head of research, Leonard Tay, foresees retail rents bottoming out in Q2 2022 before improving in the latter half of the year. His projection is for prime retail rents to grow about 2 to 4 per cent for the whole of the year, barring the emergence of new Covid-19 variants that threaten the nation's road to recovery.

CBRE head of research for South-east Asia, Tricia Song, anticipates an improvement in business sentiment and retail sales alongside the return of tourist spending and sustained economic growth. "Coupled with relatively limited new retail supply in the next few years, these should support a firmer recovery in rents after H2 2022," she said.

However, she flagged that additional challenges in the retail sector, such as a persistent rise in energy and raw material costs, as well as manpower shortages, may curtail the pace of recovery in the coming quarters.

Rents of retail spaces in Singapore's central region edged down by 0.4 per cent quarter on quarter in Q1 this year, contrasting with the 0.6 per cent growth in Q4 last year, according to figures from the Urban Redevelopment Authority (URA) released on Friday (Apr 22). Meanwhile, prices fell 1.4 per cent, versus the 1.9 per cent rise in the previous quarter.

Angelia Phua, JLL consulting director for research and consultancy, Singapore, attributed the overall rental decline to some landlords "compromising on rents to prop up occupancy rates" and lending support to retailers that are still struggling to stay afloat.

Islandwide, the vacancy rate reached 8.3 per cent as at the end of March, up from 8.1 per cent as at the end of December last year. This was partly due to occupiers of large-format spaces, such as department stores and cinemas, cutting back on their demand, Phua said. "Changing consumer preferences and declining sales of these trades have led to business consolidations and the release of large-format spaces across multiple malls when their leases expired," she added.

In Q1 2022, the closures of BHG's One Assembly concept store at Raffles City and the Filmgarde cinema at Bugis+ released about 57,000 square feet (sq ft) and 30,000 sq ft of space, respectively. BHG further shed some 49,000 sq ft at Jurong Point and 11,000 sq ft at The Clementi Mall, Phua noted.

"Meanwhile, the shuttering of Isetan at Parkway Parade also contributed to the rise in vacancy rates," she said.

The mild increase in vacancies came as the amount of occupied retail space shrank by 12,000 square metres (sq m) in Q1, reversing from the increase of 25,000 sq m in the prior quarter. Meanwhile, the stock of retail space grew just 1,000 sq m, substantially slower than the 25,000 sq m rise in Q4 last year.

Lam pointed out that the fringe area was resilient, with its occupancy level rising the most among the various subzones, by 0.3 percentage point to 92.1 per cent. The Orchard and Rest of Central Area subzones showed signs of stabilisation, as their occupancy rates were unchanged in the latest quarter.

However, the Downtown Core painted a different picture, with its occupancy rate sliding by 1.7 percentage points to 87.2 per cent, its steepest decline since Q2 2020, Lam noted.

Song from CBRE said the Outside Central Region submarket, or the suburbs, "unexpectedly" posted a slight negative net absorption of retail space, with vacancy rates reaching 5.2 per cent, up from 4.5 per cent previously. "While overall demand in the suburban market continues to be resilient, higher asking rents could have hit the threshold of some retailers, driving them to source for more affordable locations," she added.

There was a total supply of 415,000 sq m in gross floor area of retail space from projects in the pipeline islandwide, as at the end of March. That is up 2.5 per cent from the 405,000 sq m in pipeline supply at the end of 2021.

Catherine He, head of research for Colliers in Singapore, said that the limited release of prime retail supply in the next few years should lend support to rents and occupancies in the coming quarters.

Cushman & Wakefield head of research, Singapore, Wong Xian Yang, said retail footfall and sales should strengthen with the significant easing of safe management measures, including the doubling of the dine-in group size, more people returning to the office, a resumption of live performances, and the reopening of nightlife businesses. "The confluence of these factors would fuel a revival of footfalls especially for Orchard and Downtown Core retail," he noted.

However, rental growth could be tempered by higher operating costs as a result of rising inflation. "This is especially for the food and beverage sector, a key sector of retail demand, which has been hit by a double whammy of higher energy and food prices," Wong added.

JLL's Phua said: "Notwithstanding the slight pullback in Q1 2022, the recovery in the retail property market remains in sight." Consumption growth, underpinned by rising wages and a recovery in tourism, could encourage business expansions and lower vacancy rates this year amid limited supply, she said. "This should support a recovery in prime retail rents in 2022."

Lam has observed crowds returning "strongly", almost to pre-pandemic levels, in the prime shopping belt, the Central Business District (CBD) and the heartlands. This "brings assurance that brick and mortar is not dead, even as the nation is more familiar with e-commerce. What remains is how retailers can reinvent themselves via new formats, digitalisation and mobile payments, improved service levels and consumer engagement", he said.

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