In the first quarter of this year, Singapore experienced a rise in retail vacancy rates, a phenomenon attributed to the healthy demand for prime locations and steady rental growth, as reported by real estate specialists Savills.
The retail vacancy rate across the island escalated to 6.8% during the first quarter due to the introduction of 323,000 square feet of new retail space, exhibiting an increase from the previous quarter’s 6.2%.
Following five quarters of an upward trend in net take-up, the first quarter saw a net demand of -129,000 square feet, a result of a decrease in occupied space across most regions.
The recent inauguration of Punggol Coast Mall and the refurbishment of The Cathay have further contributed to the rising vacancy rates, owing to the time that these establishments require to be fully occupied.
On the other hand, landlords of prime malls situated along Orchard have reported a robust demand for lease renewals. This trend is particularly noticeable among luxury retailers, a scenario that has empowered landlords to negotiate higher rents due to a limited supply.
The exiting of current tenants is balanced by the immediate occupation by new retailers entering the Singaporean market. An example of this is the Japanese thrift shop brand 2nd Street, which recently replaced Pomelo at a location in Somerset.
The report identified early indications of rental rates coming under pressure in the Central Region, highlighted by a 0.2% quarter-on-quarter decline in the Central Area and a 1.1% decrease in the Fringe Area. The average monthly rent in the Orchard Area and Suburban Area remained static at SG$23.2 (US$18) per sqft and $14.7 per sqft respectively.
In terms of future supply, the report anticipates a fairly consistent pipeline of about 597,000 square feet of retail space this year, compared to 679,000 square feet last year.
For the entirety of the year, Savills predicts that rents in Orchard will touch the upper limit of the 1-2% forecast range, while suburban rents will lean toward the lower end of this range.
According to Savills, the escalating global trade tensions could potentially cast a negative shadow on Singapore’s export-dependent economy, particularly in the latter half of the year. This could adversely affect business recruitment and wage growth, subsequently leading to a slump in retail sales. The report concludes that the retail sector is set to witness more churn this year as underperforming tenants either endure their leases before relocating or terminate their agreements prematurely if they find their business unsustainable.
What led to the rise in retail vacancy rates in Singapore?
A surge in new retail space, coupled with the time required for new establishments to be fully occupied, resulted in an increase in retail vacancy rates.
What trend was observed among landlords of prime malls in Orchard?
Landlords of prime malls in Orchard observed a strong demand for lease renewals, especially from luxury retailers, enabling them to negotiate higher rental rates owing to limited supply.
What is the effect of escalating global trade tensions on Singapore’s retail market?
Escalating global trade tensions can negatively impact Singapore’s export-dependent economy, potentially affecting business hiring and wage growth, and leading to weakened retail sales.
