Retail rents end five consecutive quarters of declines with 0.3% q-o-q growth in 2Q2023

SINGAPORE (EDGEPROP) – Numerous new retail openings last quarter stoked up the net absorption of overall retail space to 290,520 sq ft in 2Q2023, reversing a contraction of 75,320 sq ft in 1Q2023.
“Last quarter saw numerous openings of new-to-market brands such as Sun and Sand Sports in Raffles City and international luxury brands including Aluxe, Grand Seiko and Atelier Cologne. The market also welcomed new food and beverage (F&B) entrants such as Mister Donut, Luckin Coffee, Jamba Juice and Chaffic Bubble Tea, while there were also several market returns by F&B and lifestyle retailers, such as Ben’s Cookies and Marimekko; all of which attest to retailers’ confidence in Singapore,” says Lam Chern Woon, head of research and consulting at Edmund Tie.
The opening of The Woodleigh Mall in 2Q2023 was a further testament to the healthy demand for retail space, as are the growing pre-commitment rates of upcoming retail developments, including One Holland Village and Pasir Ris Mall, says Angelia Phua, consulting director, research and consultancy, at JLL Singapore.
“In the capital markets, the rental growth in 2Q2023 likely drove prices higher as investors continued to favour quality retail assets, particularly suburban malls, for the positive rent outlook and scarcity value,” she says.
As a result, the take-up of retail space was broad-based across all geographic segments. The Orchard Road planning area recorded the largest improvement in demand, rebounding from a steep contraction of 258,240 sq ft in 1Q2023 to a positive 32,280 sq ft take up last quarter.
“As more workers returned to the offices, retail spaces in the Rest of Central Area have also seen an improvement in demand,” adds Lam.
Thus, occupancy rates in the Orchard Road area and Central Area both saw an increase of 0.7% to 86.8% and 90.5%, respectively. Consequently, both retail prices and rents in the Central Area rose by 0.3% q-o-q in 2Q2023, a reversal after five consecutive quarters of declines.
Within the Central Area, Orchard Road vacancy rates improved to 13.2% after hitting a trough of 13.9% in 1Q2023. “Orchard prime retail market remains the top-of-mind destination with international brands gearing up for expansion amidst the recovery in inbound tourism,” says Wong Xian Yang, head of research Singapore and SEA at Cushman & Wakefield.
He expects Central Region retail rents will continue recovering, underpinned by a limited new prime retail supply and an anticipated comeback of Chinese tourists, adding that monthly visitor arrivals in Singapore have crossed the 1 million mark since March and are on track to surpass Singapore Tourism Board’s forecast of visitor arrivals of 12 million–14 million for the whole of 2023.
Retail rents in the Orchard Road area will continue to lead growth in the short-term as more new-to-market and luxury brands set up shop along the shopping belt, says Wong, but adds: “The overall retail market remains volatile given economic uncertainties and prolonged high costs would continue to weigh on domestic consumption and retailers’ confidence”.
“Underpinned by a relatively tight supply pipeline, we expect the Central Region retail rents to bottom out towards end-2023, with fuller tourism recovery and clearer economic trajectory,” concurs Lam.
“Considering Singapore’s safe-haven status, the favourable supply-demand fundamentals of the retail property market and the scarcity of tradeable assets, rising rents should underpin prices of prime floor space in quality retail assets, notwithstanding higher yield expectations in an elevated interest rate environment,” says Phua.
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