816,000 Sq Ft Of New Retail Space Expected To Be Added To Market This Year, 40.6% More Than 2023
Savills Research shares that the island wide vacancy rate for private retail space has decreased to 6.6% in Q1/2024 from 6.7% in Q4/2023 - the lowest in 10 years since Q4/2014.
With market sentiments improving alongside the recovery in tourism numbers, demand for retail space at tourist-dependent submarkets such as Orchard Road has increased, easing the private vacancy rate in the Orchard Area by 2.3 percentage points (ppts) quarter-on-quarter (QoQ) to 6.4% in Q1.
Meanwhile, retail vacancy rate in the Suburban Area is under pressure as spending in suburban malls has weakened with more people returning to the office and travelling overseas. The vacancy rate for private retail space in Suburban Area went up to 4.4% in Q1/2024 from 3.9% in Q4/2023.
Prime and well-managed malls with healthy footfall continue to see strong interest in demand for space. As tourism extends its recovery, popular tourist destinations such as the Orchard Area will see further rental growth.
Savills basket of malls* shows that the average monthly rents in the Orchard Area increased 0.7% QoQ to S$22.80 psf in Q1, a rise for nine consecutive quarters. However, the average retail rent for units leased out in Savills basket of retail properties in the Suburban Area remain unchanged at S$14.70 psf in Q1.
While leasing interest along Orchard Road has improved since the gradual return of tourists, retail recovery in Orchard Area is still fragile. Taiwan Night Markets, for example, received overwhelming response during its opening at Orchard Cineleisure in July 2023, but shuttered its doors in March this year. It occupied more than 8,000 sq ft of space, starting with 24 food stalls offering a wide variety of popular Taiwanese street foods. However, due to escalating operational costs, issues of getting authentic supplies from Taiwan at reasonable prices, and compounded with a decline in consumer spending, the eatery closed for good within a short span of eight months.
Savills estimates that 816,000 sq ft (NLA) of retail space is expected to be added to the market this year, including the completed projects in Q1. This is 40.6% higher than the 580,000 sq ft (NLA) of retail space added in 2023. Projects such as Pasir Ris Mall and the retail component of Punggol Digital District are scheduled to be completed this year.
A bulk of 2.7 million sq ft of new retail space (NLA) is expected to come onto the market from 2028.
Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore comments, “We expect the momentum behind the tourism recovery to extend to 2024, with both visitor arrivals and tourism receipts improving further from last year. With the trend of tourists going for longer stays compared with stays pre-pandemic, tourist spending is projected to be between S$26 billion to S$27.5 billion this year, compared with S$24.5 billion to S$26 billion in 2023.
While more retailers could be attracted to popular tourist destinations, some retailers may exit the challenging retail market as they struggle with manpower shortages and higher operating costs. Some retailers who have been around for a long time such as Times Book Store, have vacated their premises at Plaza Singapura and Waterway Point, while Zara at Marina Square has made way for BHG’s pop-up outlet store. But with the limited supply coming onstream, we expect to see continued strong interest and rental growth in prime retail space. We still maintain our outlook of an increase of around 3% to 5% YoY in average rents in the Orchard Area this year.”
Sulian Tan-Wijaya, Executive Director, Retail & Lifestyle, Savills Singapore says, “We are handling more enquiries and closing more deals with overseas brands expanding into Singapore. This includes restaurants, gyms, mid-to-luxury retail and entertainment brands.
These overseas brands see Singapore as the regional hub for their expansion in Southeast Asia and hence tend to prefer central locations including Orchard, City Hall, Marina Bay and CBD.”
*: Savills estimated average obtainable rents in the area