Prices of shop space rose 2.0 per cent in 2012, while rentals dropped marginally by 0.3 per cent according to the latest statistics from the Urban Redevelopment Authority (URA).
Yields of retail units have dropped last year, but most market experts Channel NewsAsia spoke to are optimistic about the demand for retail space in Singapore from both investors and retailers.
After just one week, some retail units at the newly-launched mixed commercial development Alexandra Central are reportedly put on the market again.
Such speculation raises the possibility of cooling measures being extended to the commercial property sector where prices of strata-titled retail units have jumped by some 56 per cent over the last two years while median rentals have gone up by up to 35 per cent, according to Savills Singapore.
Alan Cheong, research head at Savills Singapore, said: “Rentals are not keeping up with price increases, meaning there will be yield compression. We also noticed that strata title units sold was about 1,274 square feet (in 2010). Last year, it was only 430 square feet. There is shrinkage in the average size of retail units.”
A smaller strata-titled unit could reduce the capital outlay for investors despite prices on a per square foot basis getting more expensive.
But market experts note that vacancy rates at 5.2 per cent in the fourth quarter of 2012 is at a 15-year low.
Unlike residential private property where an oversupply may be expected in the next few years, analysts believe demand for retail space is still strong.
Ku Swee Yong, CEO of International Property Advisor, said: “The future supply coming on stream will be spaced out for the next four to five years. And a large number of is concentrated in Jurong East where there will be creation of several thousand new jobs in two hospitals.”
Prime rents like those on Orchard Road are expected to stay resilient. In the worst case scenario, analysts expect a mild correction of up to three per cent. This is because of the strengthening Sing dollar and a slower Singapore economy in 2013.
Analysts said URA data on shop space rentals are derived from a wide variety of commercial properties like strata-titled units, and those belonging to real estate investment trusts or REITS.
A decline in the rental index in shop space could be due to a higher number of leases from those in the heartlands, which are typically lower than those from the Orchard Road belt.
Source : Channel NewsAsia – 28 Jan 2013