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Prime retail rents to slip 5-15%
New retail space of 3.4m sq ft available in '09, and spending slowdown
Retail landlords
are headed for a rough patch as consumer spending weakens amid the economic
downturn and with 3.4 million sq ft of new retail space scheduled for
completion next year, property consultants say.
Knight
Frank's head of retail Sherene Sng predicts that average rents for prime
retail space in Orchard Road and at suburban malls could slip 5-15 per cent
in 2009. 'For super-prime retail space on Orchard Road, the decline, if any,
will be capped at around 5-10 per cent at most, because there's not that
much super-prime space around and most of it is in malls that are very well
managed,' she said.
For
full-year 2008, Ms Sng expects retail rents island-wide to be pretty much
flat, increasing no more than 5 per cent.
CB
Richard Ellis said yesterday retail rents stagnated in the third quarter of
this year, and trimmed its full-year 2008 forecast for prime Orchard Road
rents.
It
now expects Orchard Road rents to edge up 2-3 per cent in 2008, lower than a
3-5 per cent increase it predicted earlier this year. However, CBRE is
maintaining its 3-5 per cent increase forecast for prime suburban mall rents
in 2008, due to the captive market of HDB heartland shoppers these malls can
count on, as well as limited new supply of retail space in the suburbs.
Some
41 per cent of the 3.4 million sq ft of new retail space slated for
completion next year will be in the Orchard Road belt - coming from
developments like ION Orchard, Orchard Central, 313@Somerset
and Mandarin Gallery.
'This
will bump up total private Orchard Road retail stock some 36 per cent in
just 2009 alone and undoubtedly raise concerns about space absorption,
despite the fact that retail take-up tended to be somewhat supply-led in the
past,' CBRE said.
The
biggest contributor to new retail space on the island next year will be The
Marina Bay Shoppes at Marina Bay Sands, with 800,000 sq ft of net lettable
space, according to CB Richard Ellis. The Downtown Core region, where the
development is located, will account for 24 per cent of new retail space
being completed here next year.
Knight
Frank's Ms Sng says the big factor affecting retail rents next year will be
not so much the completion of 3 million-plus sq ft of new space but a
slowdown in sales as people tighten their belts and cut spending due to the
economic downturn.
'This
will cause retailers to become more cautious and adopt a watch-and-wait
attitude and hold back business plans,' she said. 'Some smaller retailers
operating as sole proprietorships or partnerships may also be affected by
the stockmarket crash. Of course, there will be some retailers that are
still doing well - but they too will use the weaker economic climate to
secure more attractive rents from landlords when they renew leases or open
new stores.'
CBRE's
data shows that in Q3 2008, the average monthly prime retail rent in Orchard
Road was $36.80 per sq ft, while the average super-prime rent there was
$54.40 psf. The average prime retail rent in the suburbs was $29.30 psf. All
three numbers were unchanged from Q2.
CBRE's
director (retail services) Letty Lee declined to forecast retail rents going
ahead. 'A number of factors will determine the rate of rental change for the
rest of this year and the next,' she said.
'The
full impact of the financial meltdown on the job market is still unknown. In
the meantime, consumers will remain cautious and may cut spending as a
result.
'The
financial turmoil will also affect tourism, which will in turn affect
consumer spending. Landlords may be pressured to reduce rents as a result.
We are still assessing the situation and it is difficult to make a
projection at this stage.'
Colliers
International said in a report yesterday that while year-end festivities may
provide some relief for retailers, consumer spending is likely to remain
subdued given the poor economic outlook and the drop in foreign visitors.
Any
retail rental growth is therefore expected to be minimal in the last quarter
of the year. 'As such, rents are projected to increase by up to 5 per cent
for the whole of 2008,' Colliers said.
- 2008 October 24 BUSINESS
TIMES
Retail property market remains stable in
Q2: DTZ
Turnover rents
rise; limited growth for fixed gross rents
Buoyed by positive consumer sentiment and
the Great Singapore Sale period, the retail property market remained stable
in the second quarter of this year, according to a market report by real
estate consultancy DTZ.
Turnover rents in Q2 rose, but there was
limited growth for fixed gross rents. DTZ noted that tenants were 'resisting
committing at higher rents for both new retail space and lease renewals'.
First-storey monthly fixed gross rents
remained largely unchanged quarter on quarter, hovering at an average of
$42.40 per square foot (psf) for prime areas such as Orchard/Scotts Road,
$33.70 psf in suburban areas and $27.10 psf in other city areas.
The retail market is expected to remain
stable, despite competition from additional supply that will come on stream
over the next few years. Malls such as ION Orchard, Orchard
Central and 313 @ Somerset are slated for completion by 2009.
As much as 5.4 million square feet of
retail space will be added to the mix between the second half of this year
and 2012. Marina Bay Shoppes by developer Marina Bay Sands will account for
the biggest chunk of that space, with 15 per cent or 800,000 sq ft, closely
followed by CapitaLand and Sun Hung Kai Properties' ION Orchard at 663,000
sq ft. - 2008 July
3 THE
BUSINESS TIMES
 
Retail rents rise in Q3 but retail sales
at a high
Rents for shops on Orchard Road may have
increased by another 12 per cent in the third quarter to $44.30 per square
foot (psf) per month, but retailers are unfazed, especially as the latest
figures show that the second quarter of this year saw the strongest sales
for 10 years.
According to a report by property
consultancy Knight Frank, retail sales value (excluding motor vehicle sales)
in the second quarter hit a 10-year high of $8.15 billion.
The figure for the quarter was also an
improvement on the previous interim high of $7.8 billion seen in the final
quarter of last year.
Not surprisingly then, rising rents in
the Orchard Road vicinity as well as the Marina area, where rents increased
by 3.7 per cent quarter-on-quarter (q-o-q) to an average $28.90 psf per
month, are not upsetting retailers too much.
Knight Frank director (research and
consultancy) Nicholas Mak says: 'With the planned revitalisation of the
Orchard area, retailers are optimistic that their retail sales figures are
able to offset the increase in rentals.'
Knight Frank also expects full year
figures to hit a record high, pointing out that at end-July 2007, total
sales figures already stand at $18.4 billion compared to $29.5 billion for
the full year of 2006.
Nash Benjamin, the CEO of FJ Benjamin,
which owns Guess, Gap and Celine here, has noticed that rents have been
rising but he says: 'The bottom line is whatever rental you pay must finally
be relative to the business, otherwise tenants will not be able to invest.
We are fortunate that most malls we work with have a good understanding of
this principle.'
With space getting more expensive,
retailers are becoming more sensitive to rentals on a per square foot basis
too.
Steven Goh, spokesman for the Orchard
Road Business Association, believes the situation is not so much that
retailers are prepared to pay higher rents for a prime space but more that
they have become more savvy in measuring how 'productive' their businesses
are.
'For instance, a restaurant that was
2,500 sq ft before may streamline its operations to 2,000 sq ft because it
gives the optimum return of $100 worth of sales on a per square foot basis,
which can justify the rental,' he explains.
Another example Mr Goh gives is that of
fashion boutiques, which on average, must make between $120-$150 psf in
sales. And the concern is not so much about rent. 'The pressure is actually
to find new concepts,' he says.
Perhaps a sure sign that retailers and
their landlords are doing well is when a shop decides to expand, even when
rents keep rising.
High-end leather goods retailer Tod's, in
the equally high-end mall Paragon, has just moved into bigger and better
premises with frontage on Orchard Road, increasing its store size by about
50 per cent.
Patrina Tan, deputy general manager of
marketing at Paragon, says it does not discuss rents but does concede that
all landlords do see the expiry of an existing lease as an opportunity to
review rent levels. 'Rentals are always relative,' she adds.
She also reports that the sentiment among
the tenants at Paragon is definitely 'positive'.
The outlook for the future remains good
too despite close to 2 million sq ft of retail space scheduled to be
completed by next year. And at Knight Frank, Mr Mak says he does not expect
demand to decrease either.
For the rest of the year, Knight Frank
expects occupancy to increase by about one percentage point q-o-q. This will
bring islandwide occupancy to between 93 and 94 per cent and Orchard Road
occupancy to about 95.8-96.5 per cent.
Knight Frank also expects rentals for
prime retail space to increase 15-20 per cent year on year, with capital
values rising by 10-15 per cent. -
2007 October 9 SINGAPORE BUSINESS TIMES
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