Muted sentiment, retail challenges hit commercial landlords

Skyline view of the Marina Bay Sands and the central business district (CBD) area.
Skyline view of the Marina Bay Sands and the central business district (CBD) area. PHOTO: ST FILE

The toxic brew of subdued business sentiment and retail challenges like slower sales and competition from e-commerce is making life increasingly difficult for landlords in the commercial sector.

The islandwide vacancy rate in malls stood at 8.4 per cent in the three months to Sept 30, up from 7.8 per cent in the second quarter, according to data out yesterday. It is the highest vacancy level since the first quarter of 2011, when the Urban Redevelopment Authority (URA) began tracking retail space data, including for food and beverage, fitness and entertainment businesses.

JLL Singapore research head Tay Huey Ying said: "Retailers' focus towards expanding their e-commerce reach has resulted in fewer retailers looking towards physical expansion, and this has exacerbated the already weak demand for retail space."

Vacancy rates rose in all regions in the third quarter apart from the Orchard Planning Area, where the rate fell 1.2 percentage point to 8 per cent.

JLL said this was down to landlords enhancing their offerings, adding "retail-tainment" and lifestyle tenants to boost occupancy.

Retail rents fell 1.5 per cent from the second to third quarter, following a 3.9 per cent quarter-on-quarter decline in the April to June period, the URA said yesterday.

The prices of retail space also moderated at a slower pace, falling 0.6 per cent in the third quarter compared with the 3.1 per cent drop from the first to second quarter.

Islandwide vacancies for offices hit 10.4 per cent in the third quarter, up from 9.1 per cent in the second, making it the highest in 17 quarters.

This was partly due to a slowdown in business growth and leasing demand as well as the injection of new space into the market, such as Guoco Tower in Tanjong Pagar.

Although the project has a strong leasing commitment, tenants have not moved in as fitting-out work is still under way, Ms Tay said.

Office rents slipped 1.1 per cent over the second to third quarter, markedly lower than the 3.5 per cent drop in the second quarter, while prices of office space eased by 0.4 per cent, after posting a 1.5 per cent decline in the second quarter.

"Office rents will remain under pressure in the absence of a recovery in local economic growth," said Cushman & Wakefield research director Christine Li.

Wong Siew Ying

A version of this article appeared in the print edition of The Straits Times on October 29, 2016, with the headline 'Muted sentiment, retail challenges hit commercial landlords'. Print Edition | Subscribe