Rents down, vacancy rate up for retail space

Median rents in the central area drop 0.6% in Q2 while those in the fringe areas fall 0.3%

Rents of retail and office space weakened in the second quarter, hit by a faltering retail sector and tepid economic growth.

Retail rents were down 0.5 per cent in the second quarter, according to the Urban Redevelopment Authority (URA) yesterday.

The retail sector has been battling lower tourist numbers and a tight labour market. The relative strength of the Singapore dollar has also made it more costly for foreigners and even Singaporeans to shop here, experts say.

As a result, while available retail floor space rose by about 258,300 sq ft in the second quarter, vacant floor space increased around 269,100 sq ft. This sent the vacancy rate for retail space up 0.4 percentage point to 7.2 per cent, the highest since the URA made available data in the first quarter of 2011.

 

Capitol Piazza and residential mixed developments Novena Regency and RV Point were among projects with retail space completed in the second quarter.

TOO MUCH SPACE

The proliferation of space is not good news for an already weak retail scene.

MR KU SWEE YONG, Century 21 chief executive officer, on the increased vacancy of retail space

Some of the retail space completed was from non-traditional sources, including industrial mixed development CT Hub 2 and a warehouse and commercial building in Sungei Kadut Drive, noted Mr Ku Swee Yong, Century 21 chief executive officer. "Developers of strata-titled units will usually try to include the maximum retail space... as retail, in theory, should command higher rents. But the proliferation of space is not good news for an already weak retail scene."

Median rents in the central area, which includes the Downtown Core and Orchard, fell 0.6 per cent while those in the fringe areas, including Newton, Outram, Bishan, Geylang and Queenstown, were down 0.3 per cent.

A CBRE report earlier this month said average prime retail rents for Orchard Road declined at a marginal rate of 0.1 per cent for the quarter while suburban rents were flat. "Limited prime space in the Orchard Road and suburban sub-markets will help to stabilise prime rents," it said.

Retail rents could fall by up to 5 per cent this year, with space consolidation likely among non-food and beverage retailers, said R'ST Research director Ong Kah Seng.

Office rents declined by 2.6 per cent, the first drop since the first quarter of 2013. The fall was slightly more pronounced in the central area, where rents fell 2.6 per cent. Rents were down 2.4 per cent in the fringe area. However, absorption was steady as the vacancy rate went from 10.2 per cent to 9.8 per cent in the second quarter.

But "broad weakness in the office leasing market, along with record supply, is expected to push vacancy rates sharply up (next year)," said Ms Christine Li, director of research for Cushman & Wakefield. She attributed the rental decline to lacklustre second-quarter gross domestic product growth of 1.7 per cent and the supply overhang of close to four million sq ft of prime space arriving next year.

"Another source of weakness is due to the Government's restrictive foreign labour policy, with first-quarter office-using employment increasing by a mere 2,700 workers, the lowest level since the first quarter of 2009 during the global financial crisis," she added.

The outlook for the office leasing market is grim, given that the Ministry of Trade and Industry and the Monetary Authority of Singapore are reviewing their growth forecast of 2 to 4 per cent for this year, she said. "With more companies seeking space rationalisation in this challenging business environment...we expect rents to continue declining over the next six consecutive quarters."

A version of this article appeared in the print edition of The Straits Times on July 25, 2015, with the headline 'Rents down, vacancy rate up for retail space'. Print Edition | Subscribe