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Some tenants are facing rental increments of up to 20%, while others have been asked to provide four to six months’ security deposits for a one-year lease renewal.
Several retail and food and beverage (F&B) tenants are struggling to recover from the effects of the COVID-19 pandemic as they face rental increments of up to 20% during lease negotiations since August, reported The Business Times (BT).
Some landlords have also been asking for four to six months’ security deposits (SDs) for a one-year renewal.
BT noted that the usual practice was for landlords to ask for a one month SD for every year of the lease, working out to a three-month SD for a three-year tenancy.
“Pre-COVID, hardly any landlords offered one-year extensions, but now many want shorter renewals so they don’t lock in low rents for too long. But they’re asking for large SDs at the same time… A business paying S$20,000 rent must cough up S$100,000 cash for a five-month SD to stay a year. That’s a huge outlay and very stressful,” a source in the F&B industry said as quoted by BT.
This worsened simmering tensions between landlords and tenants, following tussles over rebates last year.
The report, however, noted that not all retail or F&B tenant are forking out bigger sums as some landlords have maintained previously-discounted rates, slashed rents further or restructured leases.
“There are really good landlords, typically the smaller ones, that have been very supportive and understanding,” said a chain store operator as quoted by BT.
Average retail rents in Singapore’s central region dropped 5.2% quarter-on-quarter in Q4, showed figures from the Urban Redevelopment Authority. With several operators vacating large spaces, landlords slashed rates to promptly secure replacements, said a retail industry source. Landlords also brace for more closures as the COVID-19 pandemic affect the economy.
CapitaLand Integrated Commercial Trust (CICT), the biggest mall landlord in Singapore, registered a 6.6% negative rent reversion in 2020. Tony Tan, CEO of CICT’s manager, recently said that the trust will accept lower rents only for tactical reasons.
“We remain proactive in working with our tenants to address their space and leasing requirements with flexibility and optionality,” he added as quoted by BT.
A Frasers Centrepoint Trust spokesperson explained that “the sustainability of rent is important to both the landlord and retailers, and this is an important consideration in our lease discussions”.
While the leasing environment remains challenging, prime suburban retail rents are “expected to remain competitive and resilient, supported by stable foot traffic”, it said.
Far East Organization said it “strives to be fair and equitable” during rent negotiations, engaging with tenants on a case-by-case basis.
“We understand the difficulties that tenants are facing and will assist where we can,” the company told BT.
UOL Group and UIC provided targeted support to retail tenants since March, while City Developments Limited offered short-term lease restructuring with a higher gross turnover rent and lower base rent on a case-by-case basis.
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