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Monthly rents of prime retail space in Orchard Road receded by 2.0 percent to S$32.2 per sq ft in Q1 2015 on a quarterly basis despite the 14.8 percent year-on-year increase in retail sales (excluding motor vehicles) year in February, according to Savills’ latest report.
“This could be attributed to the fall in tourist numbers as tourists form an important target segment for the Orchard shopping belt,” said the consultancy. In fact, international visitor arrivals in the first two months of the year declined by 5.5 percent on an annual basis.
In contrast, monthly rents of prime retail space in suburban malls held firm at S$31.1 per sq ft, given the consistent and large catchment of shoppers visiting these establishments throughout the week.
With this, more retailers were seen departing Orchard Road to set-up shops in suburban malls in recent months.
“Affected by externalities and policies which are beyond their control, established retailers who are flummoxed over how to curb the slide in retail sales in the Orchard Road shopping district are doing the next best thing, which is to go into suburban malls.” Alan Cheong,” said Alan Cheong, Senior Director at Savills Research Singapore.
Meanwhile a number of retail space supply entered the market last quarter. This includes Capitol Piazza in the City Hall area, which held a soft opening at the end of Q1. Vivocity’s Basement 1, which opened in April, has added 15,000 sq ft of retail space in the city-fringe area following an asset enhancement initiative (AEI). Eng Wah Global’s 321 Clementi mall officially opened in mid-March, adding retail options in the suburbs.
With the completion of Capitol Piazza and partial completion of Suntec City Mall’s additions and alterations (A&A) work, vacancy rate in the Downtown Core planning area rose by 4.2 percentage points to 11.7 percent, while the Orchard planning area recorded a marginal increase of 1.6 percentage points to 7.2 percent. Consequently, the vacancy rate for prime retail space throughout Singapore inched up 1.0 percentage point to 6.8 percent.
Moving forward, vacancy rate in Orchard Road is expected to remain low due to limited upcoming supply. However, rents could remain slightly under pressure amid tepid tourist spending and rising labour costs.
“Orchard rents are likely to hover at Q1 2015 levels, but with a slight downward bias, whilst suburban mall rents are expected to hold firm,” said Savills.
In terms of future supply, 268 Orchard Road mall is scheduled to open in the second half of the year, bringing about 96,000 sq ft of net leasable area. Projects with retail spaces that are expected to be completed in Q4 2015 include National Gallery Singapore in St Andrew’s Road (40,000 sq ft), South Beach Tower at Beach Road (60,000 sq ft) and Waterway Point in Punggol Central with 370,000 sq ft of net leasable area.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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