Retail rents under pressure

Landlords and their retail tenants are seeking the same present from Santa as Christmas approaches – a return to the good times.

The shop tenants are worried that there will be a dip in consumer spending as a result of the economic downturn. Meanwhile they are still paying top dollar for retail space.

While market watchers say they certainly are not expecting rents to rise in the final quarter of this year, some retailers are actually holding out for concessions.

But for the property companies which provide the shops, there is the additional problem of increasing supply. Next year Singapore’s prime shopping district of Orchard Road will welcome four new malls.

Among them is the four-storey Mandarin Gallery which is set for a $200 million facelift. It is due to open next October, with 130,000 sq ft of retail space. Rents there range from $12 to $60 per square foot, and about half of the space has already been leased.

The landlord, Overseas Union Enterprise, says it will find ways to help tenants cope with the tougher business climate, but it says cutting rents may not be the best thing to do.

The others are Orchard Central, due to open in the first quarter of next year, ION (mid-2009), and 313@Somerset, which is set to open by the end of next year.

Many tenants along the shopping belt are locked into their rental rates for up to three years, with the option to negotiate new deals thereafter. And analysts say high-end retailers tend to have the upper hand during such negotiations.

Mr Nicholas Mak, director, consultancy & research, at property firm Knight Frank, said: “If the landlord feels that a tenant is important, a part of the mall’s image that he is trying to build, he may be a bit more flexible in the negotiations.”

With festive shopping ahead, analysts say landlords might prefer to wait a little, but they expect retail rents to drop by 1 per cent this quarter.

Source : Today – 20 Nov 2008

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