Growing number of suburban malls could help cap rental increases

The new Seletar Mall, to be unveiled on Nov 28, 2014, will be located in the quiet neighbourhood of Fernvale in Sengkang. -- ST PHOTO: SEAH KWANG PENG
The new Seletar Mall, to be unveiled on Nov 28, 2014, will be located in the quiet neighbourhood of Fernvale in Sengkang. -- ST PHOTO: SEAH KWANG PENG

SINGAPORE - As new malls continue to open their doors while old ones undergo facelifts, an estimated 3 million sq ft of new retail space will be created in Singapore by the end of this year, said a CBRE report.

So far, consultants are observing healthy leasing activity, though they expect that the sizeable increase in new shop space may put pressure on rents, or lower occupancies if developers try not to budge on their asking rates.

Mr Desmond Sim, head of research for CBRE Singapore and South-east Asia, expects average mall rents to fall by 3 to to 5 per cent within the next six months, as "the influx of new supply" will also mean weaker demand for secondary space such as shop units on higher floors where foot traffic is lower.

More store consolidations took place in third quarter, he said, as retailers "closed less profitable outlets to focus on better performing ones while some looked to pre-terminate their leases".

Combined with their more cautious expansion plans, tenants seem to be putting up more resistance to higher asking rents, as highlighted in a report by property consultancy Colliers citing "longer tenant negotiations".

According to the basket of retail space tracked by Colliers, the rental premium commanded by prime space in Orchard Road over prime space in regional centres such as Woodlands, Tampines and Jurong East has narrowed, from 8.4 per cent at the end of June to 7.5 per cent at the end of September.

But the completion of a more suburban malls by the year's end may reverse this trend in the longer term.

"Of the 2.5 million sq ft of retail space to be completed by 2015, the largest supply will be concentrated in the suburban areas with about 1.8 million sq ft," noted Ms Lee Lay Keng, regional research head at DTZ.

"Although some of the larger suburban malls such as One KM and Seletar Mall have reported healthy pre-commitment rates, which will help to mitigate some of the supply-side pressure, the downward pressure on suburban rents is still likely to be stronger in 2015 as pre-commitment rates for other large malls such as Waterway Point are still unknown," she added.

Several strata-titled suburban malls are also slated to open in 2015, and Ms Lee expects that it might be difficult for landloard to sign up smaller retailers, who would be the main tenants here.