According to Savills Research, overall retail occupancy has improved on the back of higher take up in the Central Region, easing to a three-year low of 7.8% this quarter.
Vacancy rates in Central Region fell by 0.5% quarter-on-quarter (QoQ) to 9.3%, while that in the Outside Central Region (OCR) remained unchanged at 5.1%. The latter’s performance could be due to the subdued take-up in the newly revamped Grantral Mall @ Macpherson (the /retail component of the former Citimac Industrial Complex).
Concurrently, prime retail rents continued to rise in Q3 as more foreign brands, who are more willing to match up to the landlords’ higher rental expectations, entered the local market. Examples included Japan’s sneaker and streetwear platform SNKRDunk’s first international flagship store at Mandarin Gallery and Swedish apparel brand & Other Stories’ first Southeast Asian boutique at ION Orchard.
Tenants operating at thin margins amid escalating operating costs in prime areas could either be forced to cease their business or relocate to less prime locations. These vacated spaces will be backfilled by well-performing retailers or new entrants who are willing to match up to the new rental expectations. This could potentially alter retail mix in the market as reshuffling of tenants continues, attracting different kind of retailers. Following the opening of the Mercedes-EQ showroom at Great World City earlier this year, Porsche will set up a new showroom next year at the upcoming Guoco Midtown.
With the above, Savills monthly prime rents in Orchard and Suburban Areas increased by 1.0% QoQ to S$21.30 psf and 0.7% QoQ to S$23.20 psf, respectively. (Kindly refer to Graph 3)
Alan Cheong, Executive Director of Research at Savills Singapore adds, “The low base effect coupled with inflation-driven increases in sales revenues and mall service charges should spill over to rents.”
With the return of the office crowd, CBD Prime retail rents has firmed and businesses that are continuing their operations around the Raffles Place micro-market can anticipate to pay higher rents, especially so with Clifford Centre at Raffles Place closing end-2022. Tenants are pushed to find suitable space nearby to continue their businesses and many are being forced to close altogether because of higher rental costs within the vicinity.
Clifford Centre is set to be redeveloped into 492,000 sq ft of gross floor area (GFA) of office and 52,000 sq ft of retail space. This redevelopment could further drive retail rental growth at Raffles Place as the current development is a popular destination for workers and has a wide selection of F&B outlets, clinics and service providers.
Savills Research maintains our forecast, as in Q2, of 3% year-on-year (YoY) increase in Prime Orchard Road retail rents and 2% YoY increase for Prime Suburban rents in 2022. .For 2023, we expect a 1-2% increase in Prime Orchard Road retail rents and a 2-3% increase in Prime Suburban rents.
The inflationary pressures will drive up retail sales revenues and raise conservancy and advertising costs. All this is expected to override the softer economic conditions and ultimately lift rents marginally.
Savills Research provides in-depth analysis of property market trends, forecasts from our professional research team and market commentary to help you make the right property decisions. Please find the Retail for Q3 2022 here, for your reference.