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Landlords of retail space in Orchard Road have slightly eased their rental prices amidst the increasingly difficult business environment of their tenants, according to the latest report from Savills.
As a result, monthly prime retail rents in the Orchard Road shopping belt dropped by 5 percent to S$32.9 per sq feet in Q4 2014 – its first decline after four straight quarters of 1growth.
“It appears that landlords in the prime shopping districts are beginning to hold out olive branches to retailers, many of whom are confronted with the twin woes of higher fixed costs and lower sales,” said Alan Cheong, Senior Director at Savills Research.
In comparison, rents at prime suburban malls were unchanged at S$31.1 per sq ft as businesses there remain vibrant thanks to the large population catchment of these shopping centres.
Given the narrowing rental gap between these two locations, retailers are starting to set their sights on Orchard Road retail space. In fact, the decline in rents in the area have led to higher demand as evidenced by the fall in vacancy rates of 2.3 percentage points to reach 5.6 percent in Q4 2014.
“That said, this has not led to a decline in demand for suburban mall space as seen from the near full occupancy of Seletar Mall (99.6 percent) and OneKM (over 90 percent),” noted Savills.
Moving forward, prime retail rents in Orchard Road are expected to be dragged down by weak sales, cost pressures and labour matching difficulties being faced by retailers.
“These lower rents may have a domino effect on prime suburban rents as suburban malls strive to remain sufficiently competitive in order to attract/retain tenants. Hence, we forecast rents in prime Orchard to recede between 3 percent and 5 percent and prime suburban malls to fall by up to 3 percent,” said the consultancy.
In terms of new supply, several major shopping centres are projected to be completed this year. The Capitol Piazza, which is expected to be ready in this quarter, will offer a net leasable area (NLA) of 132,000 sq ft. Additionally, other shopping malls expected to finish by the second half of the year are National Gallery Singapore (40,000 sq ft), South Beach (60,000 sq ft), 268 Orchard Road (96,000 sq ft) and Waterway Point (370,000 sq ft).
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg.
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