Retail Sector Overall Growth May Ease In 2024 Due To Rising Operating Costs Aand Labour Crunch
For immediate Release - Orchard Road retail rents are projected to rise up to 6% year-on-year(YoY) in 2023, while those in the Suburban Area maintain at 1-2% YoY as previously forecasted.
Demand for retail space, especially for prime units with healthy stable footfall and good accessibility, is likely to hold up amid limited new supply in the near term. Retail space at tourist destinations and major shopping belts, such as Orchard Road and Marina Bay Sands, is expected to benefit from the return of tourism. Rents are expected to see sustained growth in view of tourism rebound and low base from last year. The Orchard Planning area also saw a 0.7% decline in vacancy rate, improving from the 13.9% recorded in Q1/2023.
In Q2/2023, average rent in Savills basket of prime malls trended upwards, with rents in the Orchard Road rising 1.4% quarter-on-quarter (QoQ) to S$22.10 psf. For the Suburban Area, the average rent in the Savills basket rose by 0.7% QoQ to S$14.50 psf in Q2.
Businesses which are more reliant on local customer base could see slower sales as more of them are expected to travel. Conceivably, this will be the case during the year-end holiday season. Recent closures for brands such as Crate & Barrel, UFC Gym, Haus Athletics and Fenix Fitness has been those targeted at the local market. Going forward, retailers may face challenges if people continue to travel more and spend less domestically.
Alan Cheong, Executive Director of Savills Research & Consultancy comments, “Recovery can be finicky as challenges abound and overall growth may ease next year with the slow global economy beginning to impact domestic spending and also visitor arrivals. Challenges such as rising operating costs and labour crunch will also put further pressure on retailers, hence reigning in their ability to accede to higher asking rents.”
The Ministry of Trade and Industry (MTI) reported in Q2/2023 that Singapore’s economy expanded 0.5% year-on-year (YoY), an extension of the 0.4% growth in the previous quarter. Retail trade and F&B services continued to grow at a modest pace. Retail sales (excluding motor vehicles) growth weakened across most segments in Q2.
Similarly, for the F&B segment, sales growth slowed from an average of 12.7% YoY in Q1 to 4.2% YoY in Q2. Due to revenge vacation, the weakening of foreign currencies and the mid-year school holidays, restaurants and high-end dining concepts felt the reduction in patronage. Meanwhile, more diners are attracted to private dining settings which offer a unique experience. As a result, some high-end restaurants such as Kappo Kaji at Orchard and Cuisson at Tanjong Pagar have ceased operations.