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Demand for retail space in Singapore continued to soften, weighing down on retail rents in the third quarter of 2016, revealed a Knight Frank report.
This comes as retailers continue to consolidate outlets to streamline costs on the back of persistently weak retail spending, intensified completion for the spending dollar as well as the softer global and local economic conditions.
In Q3 2016, average Orchard Road prime rents fell 0.5 percent to S$35.10 per sq ft per month, while suburban prime rents improved marginally by 0.1 percent to S$29.50 per sq ft per month.
Prime rents held steady within the Marina Centre-City Hall-Bugis, and city fringe areas, standing at S$31.40 per sq ft per month and S$24.70 per sq ft per month, respectively.
On an annual basis, prime rents across all locations declined.
“This was largely weighed down by the weaker retail spending amid the softened global and local economic performance, which resulted in more tenants working towards downsizing and consolidation of their businesses,” said Knight Frank.
Given the challenging retail environment, Knight Frank expects rents to moderate further in the fourth quarter of 2016.
Average rents in the central region, for instance, is forecasted to fall by six to eight percent year-on-year by Q4 2016, while the more resilient prime rents are expected to drop by up to three percent year-on-year over the same period.
Knight Frank noted that the predicted fall in rents takes into account “not only the projected weakened demand from retailers, but also the likelihood of landlords re-adjusting the rental structures to help their tenants tide over down cycles of the market in order to maintain healthy occupancy status”.
Notably, about 1.072 million sq ft of net lettable major retail space is set for completion for the whole of 2016. Of this, 38.2 percent or 409,000 sq ft was completed during the first half of 2016, while the remaining 663,000 sq ft is set to be completed in the second half of 2016.
And with retailers taking a cautious stance towards business expansion, Knight Frank expects island-wide occupancy to fall from 92.8 percent in Q4 2015 to between 90 percent and 92 percent in Q4 2016.
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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