Analysts expect retail rents to remain firm despite slow sale growth

In time to catch the year-end shopping crowds, Singapore-listed CapitaMalls Asia is launching two of its projects in the suburbs this week.

Westgate opened its doors on Monday and Bedok Mall will start business from Tuesday.

But analysts told Channel NewsAsia it is not all joy for some landlords of retail property.

With all its shop space fully leased, Bedok Mall is abuzz with retailers hurrying to stock up in time for Tuesday’s opening.

And over in the Jurong Lake District, Westgate opened on Monday, with 90 per cent of its shop space taken up.

Based on official statistics, market experts noted that retail sales have seen slow growth in 2013. But as residents still need to buy necessities near their homes, landlords of suburban shops should still be able to command attractive rentals

According to Savills Singapore, prime suburban rents have remained flat in the third quarter at S$31.1 per square foot (psf) per month for the sixth consecutive quarter.

On a quarter basis, retail space rentals in Orchard Road — Singapore’s premier shopping belt — slipped 1.5 per cent in the third quarter from S$35.1 to S$34.6 psf a month.

Looking ahead, analysts said the gap in rental rates for retail space in the suburbs and the prime areas are getting smaller.

But they say the narrowing gap may not continue.

Alan Cheong, research head for Savills Singapore, said: “For 2014, the battle is not conclusive — on whether the landlords win to bring rentals up or tenants want to force rentals to come down, so it will stay pretty flat in 2014 islandwide.”

Savills Singapore highlighted that vacancy rates of shop space at Orchard Road have increased to 7.7 per cent from 7.3 per cent in the third quarter.

And in 2014, supply of shop space may increase with the expected opening of 268 Orchard and Orchard Gateway.

But market experts said they do not expect doom and gloom in the prospects of these two malls.

Desmond Sim, associate director for CBRE Research, said: “Unlike the huge supply we saw three to four years ago with ION Orchard and 313 and Orchard Central, in Orchard we see a limited supply so we don’t see any oversupply at all.”

Orchard Gateway, which is nearly completed, has a 95 per cent pre-commitment rate.

And analysts expect rentals of retail space islandwide to be robust, as the industry will be boosted by the spending power from Singaporeans’ wage growth and healthy tourist arrivals.

Source : Channel NewsAsia – 2 Dec 2013

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