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Average retail rents fell marginally quarter-on-quarter (q-o-q) in Q3 across all location in Singapore due to the slowing retail sales, labor restrictions and a substantial amount of available space, a recent DTZ report revealed Monday (29 September).
According to the report, “due to these circumstantial challenges in the industry, the take-up of new retail space has been slow.” Island-wide net absorption of retail space dropped to 62,400 sq ft in H1 this year from the 326,000 sq ft recorded over the same period in 2013.
The firm highlighted that contributing to the decline are newly added retail spaces in the city-state, noting that between Q1 and Q3 2014, about 924,300 sq ft of retail space has been completed.
In Orchard/Scotts Road and suburban areas, average rents fell for the first time in more than a year by 0.3 percent and 0.5 percent q-o-q respectively, while over at other city areas, average rents fell by a stronger 1.0 percent q-o-q in Q3, following a 0.3 percent decline in the previous quarter.
Anna Lee, Director of Retail at DTZ, said; “Within shopping malls – both old and new – there is more available space, especially on the higher floors where catchment or footfall may be lower. Understanding the difficulties faced by retailers, landlords are now more flexible on asking rents by providing various incentives in their rental packages. Retailers, on the other hand, continue to focus their efforts and resources on outlets that are more successful, putting off expansion plans in the interim.”
Despite this, as well as the tightened financing conditions caused by the Total Debt Servicing Ratio (TDSR) framework, DTZ revealed that demand for strata-titled retail space continued to be “relatively healthy.”
Citing the caveats lodged with URA REALIS, slightly over 100 strata-titled retail units were transacted in Q3. This quarter also saw new sale volume holding up q-o-q following the launch of City Gate, while secondary sale transactions falling by about 40 percent q-o-q to 35 units.
“Strata-titled retail units available for sale in the market are limited. In addition, out of the 5.5 million sq ft of retail space expected to be completed between Q4 and 2019, only about 10% is expected to be strata-titled. This limited supply supports the potential for capital appreciation in the long term, and is one of the reasons why investor interest in strata-titled retail units remains healthy despite yield compression,” Lee Lay Kang, Regional Head (SEA) for Research at DTZ said.
The firm however warned investors to be mindful that “demand for smaller strata-titled retail units could be weaker amidst the current tough operating environment, especially from smaller retailers, who are likely to form the bulk of demand for such strata-titled retail units.”
Going forward, DTZ expects the retail sector’s performance to continue impacted by changing trends in retailing, consumer patterns and near-term supply pressure.
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this and other stories, email nikki@propertyguru.com.sg
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