Rents for retail space are expected to fall more sharply in this half of the year amid mounting vacancies stemming from the pandemic, according to a report yesterday.

It noted that while most retail businesses resumed operations from June 19 after the two-month circuit breaker, social distancing measures mean many activity-based tenants, such as those in food and beverage (F&B) and health and wellness, are unable to operate at full capacity.

This could lead to many businesses shuttering for good, in turn leading to a rise in vacancies in non-prime locations.

"The entire retail market may see steeper falls in rent in (the second half) due to higher expected vacancies, lower footfalls, social distancing measures and economic uncertainties due to Covid-19," said Ms Christine Li, research head for Singapore and the region at consultancy Cushman & Wakefield (C&W), which compiled the report.

"Currently, many landlords are still maintaining close to pre-Covid asking rents, but as vacancies rise, landlords are expected to become more flexible."

The firm said prime retail rents slid across the board from the first to the second quarter, led by a 3.5 per cent drop in "other city areas" to $20.88 per sq ft (psf) a month.

Prime rents fell by 1.5 per cent in Orchard to $34.73 psf and 0.9 per cent in the suburbs ($31.56 psf).

C&W expects prime rents in Orchard and other city areas to fall by about 10 per cent this year, while suburban prime rents may see a 5 per cent drop.

Ms Li said rents will be less affected in popular prime spaces in sought-after suburban malls that can maintain high occupancy levels owing to their strong tenant profile.

During the second quarter, indoor family attraction KidZania Singapore in Sentosa announced its closure after four years while German-themed Starker Bistro closed all seven of its outlets here.

The market expects more vacant spaces in non-prime locations coming on to the market in this half as activity-based tenants are usually in non-prime spaces in malls owing to their larger size requirements, said C&W.

There could also be an overall fall in new demand for retail spaces as F&B tenants explore delivery options such as cloud kitchen and central kitchens, owing to current social distancing measures, it added.

Other retail casualties include 12 Esprit outlets, while Robinsons is moving out of Jem next month, and Isetan will not renew its lease at Westgate when it expires in December.

C&W said some mall operators can reinvent space to secure replacement tenants. Jem reconfigured its layout to accommodate Ikea's first concept store, which is taking over the vacancy left by Robinsons. The store will open next year.

Mr Mark Lampard, C&W's executive director, regional tenant representation, said: "There is some opportunity for retailers to pursue prime retail spaces during this time as vacancies rise, alternatively, they could also explore suburban prime options for more stability.

"What is very clear is that retailers have the opportunity to sharpen their e-commerce channels including virtual live sales, given that it is a major mode of transacting business now."