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Average monthly gross rents of prime retail space in the city fringe dipped by 1.3 percent quarter-on-quarter to S$23.68 per sq ft in the first quarter of 2015, according to a report from Cushman and Wakefield (C&W).
Notably, this represented the highest quarterly rental fall among all submarkets, and is attributed to falling tourist arrivals and rising labour costs.
As for the Orchard Road submarket, it suffered a smaller rental drop of 0.8 percent to S$38.20 per sq ft, as the area is still highly-desired by international retailers looking to open their flagship stores, C&W said.
Meanwhile, the suburban submarket posted the smallest decline of 0.5 percent to S$31.85 per square foot during the first quarter.
Cushman and Wakefield also noted that the consolidation of space among various retailers has been more evident since the start of 2015.
“Fashion apparel and accessories brand Lowrys Farm exited the market earlier this year, while other tenants such as Marks & Spencer and Cold Storage in The Centrepoint, John Little stores at Marina Square and Tiong Bahru Plaza, and Japanese department store Isetan at Wisma Atria are expected to cease operations by Q2 2015. Public-listed group Lifebrandz is also expected to pull out five nightspots at The Cannery at Clarke Quay, surrendering 57,000 square feet of space,” it said.
Based on the consultancy’s estimates, the total amount of secondary space that could re-enter the market in 1H 2015 would add up to more than 310,000 square feet.
“Against the backdrop of weakening leasing demand, landlords are increasingly more receptive to short-term tenancies in order to remain competitive in the challenging environment. One such example is the proliferation of pop-up stores, where landlords allocate pockets of retail space for temporary stores,” explained Cushman.
Amidst the forecasted downfall in visitor arrivals for 2015 and the less optimistic retail sentiment, the vacancy rate of prime retail spaces is expected to creep upwards and drag down rents. In light of this issues, landlords are likely to be more open to rental concessions in a bid to retain major tenants.
Nonetheless, occupancy rates of prime retail space in Orchard Road could remain resilient due to the limited pipeline between 2015 and 2018.
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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