It's a tenant's market in malls

Decathlon staff preparing for the store's opening on Saturday in Viva Business Park in Chai Chee. The French sporting goods retailer signed a lease for more than 15 years for the 35,000 sq ft outlet.
Decathlon staff preparing for the store's opening on Saturday in Viva Business Park in Chai Chee. The French sporting goods retailer signed a lease for more than 15 years for the 35,000 sq ft outlet.ST PHOTO: AZIZ HUSSIN

Landlords extend lease lengths to attract and keep coveted tenants in tough retail climate

Challenging retail conditions seem to be prompting landlords to extend lease lengths to attract and keep sought-after tenants.

The move, said experts, comes amid cut-throat competition for anchor brands and retailers downsizing in the face of staff shortages and the rise of e-commerce - leaving landlords struggling to fill the space.

French sporting goods retailer Decathlon will open its first physical store here on Saturday - a 35,000 sq ft outlet in Viva Business Park in Chai Chee - after signing a lease for more than 15 years. The lease for its next store, opening in City Square Mall in June, is of a similar length.

The brand plans to eventually open 21 physical stores here, each over 15,000 sq ft in size, with leases of up to 30 years.

New entrants, including brands like Victoria's Secret, opening flagship stores here this year are also understood to have inked longer leases than the typical three years.

Although there are no official studies on the changing length of retail leases, experts contacted said there has been a move towards longer leases for coveted brands.

Property consultancy JLL Singapore's director of retail Lee Siew Ling said: "Brands that get such terms would be those that landlords feel can bring in foot traffic and attract other retailers."

She estimated that 5 per cent of a mall's tenants would have leases longer than the three-year norm, up from 2 per cent half a decade ago.

Softer rents lately may also have enticed tenants to lock in longer leases, she said.

JLL figures show that Orchard Road rents fell from $38 per sq ft per month (psfpm) in the last quarter of 2014 to $36.85 psfpm in the same period last year.

Mr Steven Goh, who runs retail consultancy SG Retail Network, said: "It is a tenant's market. Landlords know that, to fill their malls, they need to be flexible."

What the long-lease trend could mean for shoppers, said Singapore Polytechnic senior retail lecturer Sarah Lim, is a wider variety of brands here and more reasonable prices.

"Rents take up a large chunk of costs, so stable rent usually means more stable prices," she said, adding that long leases are good for landlords in sluggish times as tenants are locked in for longer periods.

Mr Clarence Chew, head of marketing at Decathlon Singapore, said the brand controls its supply chain from research and development to production and shipment, and earns by selling a large number of items rather than from high profit margins per product .

"To do that, we need a huge store. And we don't have third-party costs so we are able to keep prices low," he said, adding that Decathlon will be selling over 95,000 items at its Chai Chee store at prices 20 per cent to 40 per cent lower than its competitors.

He said that the initial investment for its first store here was over $1 million excluding renovations, rental and operating costs. "We would not have opened here on a short lease."

Ms Patrina Tan, senior vice-president of retail, marketing and leasing at Overseas Union Enterprises, which manages Mandarin Gallery, said it is "more open" to longer leases now. "If you have secured a good tenant, what you want is more stability, especially if you are sure of the brand."

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A version of this article appeared in the print edition of The Straits Times on January 14, 2016, with the headline 'It's a tenant's market in malls'. Print Edition | Subscribe