Fall in average prime retail rents in Orchard, suburbs

Average prime retail rents in Orchard Road fell for a sixth straight quarter while those in the suburbs slid for a third straight quarter, a new CBRE report has found.

But bright spots can still be found, especially around well-located, well-managed suburban malls strongly directed at families and the immediate catchment area, said Mr Desmond Sim, CBRE research head for Singapore and South-east Asia.

For example, Compass One in Sengkang recently reported 90 per cent pre-commitment by tenants. It is reopening after an asset-enhancement exercise.

According to CBRE, prime retail rents in Orchard Road fell 1.1 per cent from the first quarter to $32.50 per sq ft (psf) per month in the second quarter. They are 4.4 per cent lower than a year back.

Prime suburban retail rents fell 0.7 per cent to $29.45 psf per month and are 2.8 per cent lower than a year back.

"The market is particularly challenged by a mismatch of demand and supply at this point in the cycle," said Mr Sim.

Certainly, times are lean in retail trade. Excluding motor sales, the retail sales index in March fell 4.3 per cent from a year back, in constant dollar terms, Savills noted. On a brighter note though, total tourism arrivals rose 13.8 per cent year on year in the first quarter.

Official data show islandwide retail vacancy rates rose by 0.1 percentage points from the end of last year to 7.3 per cent in the first quarter. The vacancy rate in Orchard Road rose 1.2 percentage points to 8.8 per cent, a five-year high.

While issues about Singapore's strong currency, lacklustre tourism spending growth and high supply chain costs cannot be directly addressed by landlords and retailers, landlords can consider some measures to mitigate against ill winds buffeting the industry, said Mr Alan Cheong, Savills Research senior director for Singapore.

For one thing, they could reconsider changing their rental model to one more closely pegged to the level of business turnover so that the landlord would have more skin in the game and strive to help each tenant succeed, he said.

"The old school way of believing... asset enhancement initiatives may bring about a revival of the mall may need to be supplemented by their ability to think like a new school tenant and work for their success."

A version of this article appeared in the print edition of The Straits Times on June 10, 2016, with the headline 'Fall in average prime retail rents in Orchard, suburbs'. Subscribe