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Can retailers operating in regional centres sustain their gains or will the prime Orchard Road shopping belt fight back?
By Nikki De Guzman
With a challenging landscape arising from falling tourist arrival numbers, tough labour conditions, and an unstable global economic outlook, the Singapore retail market continues to face tough hurdles. Business costs and geographical competition also continue to rise resulting in a more challenging market for retailers, particularly those in the prime Orchard Road shopping belt.
As a result, some retailers are taking longer to push through with their leasing transactions. Market experts are now forecasting a standstill, if not a moderation in retail rents throughout 2015.
In this issue, we look at the retail leasing market – what the challenges bring, how prices are holding up and what we can expect from one of Asia’s hottest retail destinations.
Cause and effect
Despite the steady leasing demand, retail rental growth remained restrained throughout 2014, as consumer sentiment became tepid amid dwindling tourist arrivals.
Unlike during the period from 2010 to 2013 when it recorded stellar numbers of tourist arrivals, 2014 saw a 3.1 percent year-on-year decline to 15.1 million foreign arrivals, revealed data from the Singapore Tourism Board. The total figure recorded last year missed the target of between 16.3 million to 16.8 million the agency set, and marked the first decline in tourist arrivals since 2009.
So far this year, the muted tourism conditions from last year lingers on as visitor arrivals continue to fall in the first four months of 2015—dropping 5.4 percent compared to the same period last year. This contributed to the decline in retail sales seen in the previous months as consumer spending remained tentative.
Meanwhile, shopping malls along Orchard Road have been greatly affected, given that both international and local brands in the area are more dependent on tourist spending. This, on top of other challenges already hurting the market, is adding to the ailing momentum and causing retailers in Orchard to become increasingly cautious towards expansion.
In light of weaker-than-usual business sentiment apparent in the persistent contraction of international tourist arrivals and retail sales, monthly prime ground floor gross rents in Orchard Road slipped 0.9 percent in the first quarter, and corrected further by 1.6 percent quarter-on-quarter in Q2. According to Colliers International’s retail reports, rents are now at $35.25 psf as of end-June 2015, down from $36.17 psf at the end of 2014 (Refer to Figure 1).
Figure 1: Average monthly gross rents of prime retail space
Others’ gain
But for those retailers operating outside Orchard Road, rental movement is moving in a different direction.
As a growing number of retailers move out of the prime shopping belt, more businesses are making a presence in the regional centres.
With the support of a ready pool of residents living in nearby suburban areas as the main draw, average monthly gross rents of prime retail rents in the regional centres have held firm in recent quarters. After a 1.1 percent overall increase in 2014 to $33.83, rents in the regional centres nudged up slightly by 0.3 percent in the first quarter of 2015, and continued to hold firm in the last three months at $33.94 psf, according to reports from Colliers International (Refer to Figure 1).
As the encouraging footfall continues luring retailers into the regional centres, the command of Orchard Road rents over the suburban areas is beginning to narrow. In fact, a Colliers report in January said retail trends in 2014 “continue to indicate that retail activities have gained greater prominence in residential locations island-wide and are no longer as heavily concentrated in the more central Orchard road locations”.
This is evident from data published by the property consultancy which noted that the rental gap between Orchard Road and the regional centres narrowed from 6.9 percent at the end of 2014 to 5.6 percent in Q1 this year, and contracted further to 3.9 percent at the end of Q2.
With the rental gap between Orchard Road and regional centres narrowing, property analysts said there is a possibility that retailers will shift their interest to Orchard Road in the near future.
A common strategy
Given that the retail environment is becoming increasingly competitive, landlords are thinking of new ideas on how to retain tenants, attract new brands and continue to bring the pedestrian footfall to their malls.
Just this year, some existing malls were revamped while others announced asset enhancement plans to spruce up their developments. Earlier this year, CapitaMall Trust (CMT) commenced redevelopment plans for three of its malls in the suburbs, including Bukit Panjang Plaza, Tampines Mall and IMM Building, while Mapletree Commercial Trust (MCT) announced in May the completion of the asset enhancement initiative at Vivo City. That same month, renovation works at Millenia Walk were completed.
Over at Orchard Road, Frasers Centrepoint announced the $50 million facelift of The Centrepoint. Meanwhile, Scotts Square revamped its tenant mix after a series of high-profile tenant departures after leases expired.
The silver lining
But in the midst of multiple challenges facing the market, the number of new-to-market brands making their way to Singapore has been encouraging. According to CBRE’s MarketView for the first six months of the year, “the number of international brands entering the market remained healthy”. This was mainly driven by landlords’ strategy to bring in fresh brands to attract visitors.
This is seen in the number of international retail and F&B brands that have arrived in Singapore in recent months.
In Orchard Road alone, several foreign brands have set up flagship stores, including American beauty brand Fresh and Dutch men’s clothing line Scotch & Soda which set up their first Singapore stand-alone store at ION Orchard and Takashimaya Shopping Centre respectively. In addition, Paragon Shopping Centre also welcomed Spanish footwear brand Pretty Ballerina which opened its first Singapore boutique, and British tailoring house Gieves and Hawkes which opened its first boutique in Southeast Asia.
According to Colliers, this stream of new brands expanding in the city-state is expected to continue to form the main source of leasing demand due to Singapore’s strategic regional location that draws both global and Asian retailers to the market.
In the near term
Looking ahead, despite Singapore’s evolving maturity as a retail destination, Colliers expects retail rents in the republic to either remain at current levels or decline further as demand is offset against the tough labour conditions and pressures of occupational cost within a competitive operating environment.
To combat these hurdles, the best solution for the retail industry is for tourism to grow again. But given the mild upside projected for the tourism industry this year—a mere 3.0 percent growth from the number of tourist arrivals in 2014—retailers are expected to remain cautious in their operations. This is expected to continue putting pressure on rents.
Against this backdrop, rents for prime retail space in the regional centres are expected to weather the current market conditions better than those along Orchard Road. As such, Colliers forecasts a possible correction of up to -5.0 percent on average monthly gross rents for prime ground floor retail space in Orchard Road, having already declined by 2.5 percent in the first six months of the year. Meanwhile, the regional centres might see movements of between -1.0 percent and 1.0 percent for the whole of 2015.
The Grandstand
200 Turf Club Rd
Type: Shopping / Lifestyle mall
Developer: Cogent Holdings Ltd.
Tenure: 3+3 years, ending 18 February 2018
Unit Sizes: From 600 sq ft to 5,000 sq ft
Nearest MRT: Botanic Gardens, Sixth Avenue (upcoming)
Rental Price: $5.50 to $7.00 psf
The Grandstand is a shopping and lifestyle hub located at 200 Turf Club Road, offering a range of food and beverage concepts, children’s enrichment and activity centres, retail outlets such as a hypermarket, and Singapore’s first farmers’ market, comprising more than 35 independent gourmet grocers and specialty stores.
Consisting of the seven-storey North Grandstand and six-storey South Grandstand, the development boasts 77 retail units ranging from 600 sq ft to 5,000 sq ft in size.
Another feature is The Grandstand Car Mall. At 450,000 sq ft, it is one of the largest car marts in Singapore that can house up to 150 car showrooms and 3,800 cars.
Strategically located in the Bukit Timah area, The Grandstand is accessible via major roads and expressways, including Dunearn Road and the PIE. It is served by the Botanic Gardens MRT station and upcoming Sixth Avenue station on the Downtown Line 2.
The Grandstand is developed and managed by Cogent Holdings Ltd.
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