Rents in the Central region may fall 6-8% in Q4.
The outlook for Singapore’s retail sector for the last three months of the year remains subdued, with weak retail rents made worse by retailers consolidating outlets to streamline cost.
Average island-wide prime retail rents moderated in Q3 2016, with that of Orchard Road falling for the first time since Q2 2015 on the back of the tougher retail climate, reports Knight Frank (KF).
The average gross rents for prime spaces was $31.20, which represents 2.2% decline YoY and 0.2% dip on a quarterly basis. Average Orchard Road prime rents, meanwhile, declined by 0.1% YoY and 0.5% QoQ.
According to KF, average rents in the Central Region are envisaged to fall by 6.0% to 8.0% y-o-y by Q4 2016, while the more resilient prime rents to moderate downwards by up to 3.0% y-o-y in the same period.
“The expected fall in rents takes into account not only the projected weakened demand from retailers, but also the likelihood of landlords readjusting the rental structures to help their tenants tide over down cycles of the market in order to maintain healthy occupancy status,” it said.
An estimated 1,072,000 sq ft of net lettable major retail space is slated for completion in the whole of 2016. KF noted that out of this, 38.2% (409,000 sq ft) was ready in the first half of 2016, with the remaining 663,000 sq ft to be completed in H2 2016.
“In addition to this is the cautious stance taken by retailers towards business expansion, and island-wide occupancy is likely to fall from 92.8% in Q4 2015 to between 90.0% and 92.0% in Q4 2016,” said KF.
KF’s bearish outlook on Singapore’s retail sector is supported by the following indications of weak overall spending:
1. Singapore’s consumer confidence entered the pessimistic range.
According to the Mastercard Index of Consumer Confidence, Singapore saw a significant decline of 10.7 points in H1 2016 from H2 2015. The degree of decline lagged behind only Indonesia (-14.7 points) and Hong Kong (-12.4 points), of the 17 countries within the Asia Pacific region tracked by Mastercard.
2. The overall Retail Sales Index (excluding motor vehicles)(seasonally adjusted, at constant prices) improved by 3.5% m-o-m in July 2016 compared to the preceding month. All retail trades saw improvement with the exception of Food & Beverages, which declined by 1.5% monthon-month (m-o-m) over the same period. However on a year-on-year (yo-y) basis, the overall retail sales (at constant prices) declined by 3.7% in July 2016, with Computer & Telecommunication Equipment (-18.7% y-oy), Watches & Jewellery (-16.6% y-o-y) and Food & Beverages (-9.7% yo-y) trades seeing the steepest falls.
3. Employment in the wholesale and retail trade declined by 1.8% in H1 2016 compared to H2 2015. This could be attributed to the weaker retail sales and greater caution in manpower deployment by retailers.
4. Total visitor arrivals for the period of January to July 2016 increased by 11.5%, compared to the same period last year, to reach 9.8 million. While visitors from China and Indonesia rose by 49.2% y-o-y and 6.8% y-o-y respectively in the first seven months of 2016 compared to the same period in 2015, visitors from Malaysia dropped by 1.6% y-o-y.