DTZ Holdings plc : Singapore retail rental outlook turns cautious Singapore | 21 December, 2011

According to estimates by DTZ, part of UGL Services, a division of UGL Limited, the average gross fixed rents of prime retail space island-wide in Q4 2011 were unchanged as retailers grew more cautious against the backdrop of a worsening Eurozone debt crisis.

In the Orchard/Scotts Road area, the average gross fixed rent of prime first-storey retail space stood unchanged at $40.20 per sq ft per month in Q4 2011 after rising 0.5% quarter-on-quarter (QOQ) in Q3 2011. The average gross fixed rent of prime first-storey retail space in the area rose 1.0% year-on-year (YOY), recording the best performance in 2011 compared to other areas in Singapore. The supply pressure in the prime retail belt has eased in 2011 with only 85,000 sq ft of net lettable area (NLA) from Scotts Square added to the stock in the year, compared to 1.3 million sq ft added in 2009 and 181,000 sq ft in 2010.

The retail scene in the Orchard/Scotts Road area has become more competitive with the entry of new-to-market and established international brands. Shopper traffic at older shopping centres is affected as consumers are lured to newer centres with more interesting retail concepts. Those that target teenagers and young adults also found their performances vulnerable when their trend-led target consumers lose interest and gravitate to other shopping centres. As a result, there was uneven performance in shopping centres along the prime Orchard/Scotts Road belt.

Ms Anna Lee, Director of DTZ Singapore Retail, said: "With the deteriorating economic outlook, retailers are more cautious about business expansion and are thus more selective in taking up new space. Nevertheless, we are continuing to see new international retailers who are actively looking for space as they look towards to expand in Asia in the light of weak consumer demand in the west."

Ms Chua Chor Hoon, Head of DTZ Asia Pacific Research, noted: "Prime rents in Orchard/Scotts Road are likely to stay largely flat in 2012. While there is not much new supply next year with only an estimated 127,000 sq ft of NLA from the additions and alterations to The Atrium@Orchard, the spread of the Eurozone debt problems and slowdown in economic growth will have some impact on discretionary retail spending and tourist visitors."

The average gross fixed rent of prime first-storey retail space in other city areas was also unchanged QOQ at $24.05 per sq ft per month in Q4 2011. For the whole of 2011, the average gross fixed rent of prime first-storey retail space in other city areas grew 0.6% YOY. In a bid to remain ahead of the competition with the nearby Orchard/Scotts Road, retail developments such as Suntec City Mall, Iluma, CHIJMES and PoMo have announced asset enhancement initiatives to increase their appeal to shoppers.

The average gross fixed rent of prime first-storey retail space in the suburban areas was similarly unchanged QOQ at $33.70 per sq ft per month in Q4 2011. Rents in the suburban areas continued to remain flattish due to the substantial pipeline supply. New suburban retail completions in Q4 2011 included Alexandra Retail Centre (ARC), Greenwich V and Junction 10 which added around 227,000 sq ft of NLA to the stock. For the whole of 2011, around 660,000 sq ft of NLA or 76% of the total new supply came from the suburban areas. The larger shopping centres completed this year are Changi City Point, Junction 10 and 112 Katong which are also located in the suburban areas. As a result, there was no growth in the average gross fixed rent of prime first-storey retail space in the suburban areas in 2011.

From 2012 to 2016, the total potential supply of private retail space including projects on awarded government land sale sites without planning approval as well as projects in Marina South and Ophir-Rochor to be developed by Khazanah Nasional and Temasek Holdings is estimated to be around 4.6 million sq ft of NLA. More than half of this potential supply (around 2.7 million sq ft of NLA) will be in the suburban areas. The west region will see a few major shopping centres which account for around 43% of the potential supply in the suburban areas. This includes three retail developments in Jurong Gateway - JCube (former Jurong Entertainment Centre) by CapitaMall Trust, Jem by Lend Lease and CapitaLand Group's neighbouring project.

On the whole, while suburban shopping centres generally cater to the catchment in their vicinity, there will nevertheless be some impact on retail space in neighbouring towns which had in the past been serving the catchment of the new shopping centres. The increase in supply also means more choices for retailers in the suburban areas which will continue to put a cap on suburban retail rental growth next year.