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Even as rents in retail malls are expected to fall by up to 14% for the whole of 2020, analysts do not think tenants will rush in to take up vacant lots.
Analysts do not expect retail tenants to rush in and take up vacant lots, particularly in prime shopping malls within the central region even as rents are anticipated to drop by 4% to 14% for the whole of 2020, reported TODAY.
For the whole of 2020, rents in prime malls in areas like Orchard Road are expected to drop by 10% to 14%, while rents at suburban malls are expected to decline at a lower rate of about 4% to 5%.
Analysts believe suburban malls will be more resilient since they sell more essential items.
And as more businesses are expected to close as the pandemic drags on, analysts are also anticipating an increase in vacancy rate.
Nicholas Mak, Head of Research and Consultancy at ERA, expect this year’s vacancy rate to hit 9% to 10%.
Urban Redevelopment Authority data showed that rental prices for retail declined 2.3% in Q1 2020, while vacancy rate rose 0.5 percentage points and now stands at 8%.
The last time retail rents dropped by double digits for the entire year was in 1998, when rents fell 18.6%. The city-state was then reeling from the 1997 Asian Financial Crisis.
Although official data for Q2 2020 is not yet available, Cushman and Wakefield said that prime retail rents fell in various locations. It revealed that rents within the city area, excluding Orchard, fell the most at 3.5% from the previous quarter.
“Currently, many landlords are still holding onto near pre-COVID asking rents, but as vacancies increase, landlords are expected to become more flexible,” said Christine Li, the Head of Research for Singapore and Southeast Asia at Cushman and Wakefield.
Desmond Sim, Head of Research for Singapore and Southeast Asia at CBRE, noted that lowering rents are usually the last resort of landlords – who would normally help tenants through cash rebates, like offsetting operational or marketing expenses.
“Rental rates are usually contractually bound for three years, so rental erosion would take longer to claw back,” said Sim as quoted by Today.
However, landlords would have to offer attractive rents in order to attract new tenants, he added.
United First Partners’ Head of Asian Research Justin Tang expects the second quarter figures to be marginally worse compared to the first quarter even as April and May – or two months of such quarter – fall squarely during the circuit breaker period.
This comes as tenants who have decided to terminate their leases would need to serve a notice period of three months, during which time they would still be paying rent.
Rental waivers and government subsidies may also delay the closure of some tenants.
As such, the real ground situation may only be reflected in the official data in the second half of 2020, said Tang.
However, analysts are mixed on whether falling rents would be enough to attract new tenants.
With many retailers going online, Tang said COVID-19 may have changed the face of Singapore retail.
“What Amazon didn’t kill off, COVID-19 probably did,” TODAY quoted him as saying.
Sim, on the other hand, believes that physical malls remain relevant given that online shopping involve long wait times, especially for items shipped from overseas.
Mak also noted that some malls, particularly those owned by real estate investment trusts, may have adopted a certain strategy as to their tenant mix.
“It doesn’t mean they will grab the first tenant that comes along. Some vacancy units may take longer to fill up as the mall owner is concerned about longer-term impact,” he explained as quoted by TODAY.
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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg
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