New fashion and lifestyle brands spur recovery in retail sector

New-to-market international retailers have sprung up in 3Q2023, bolstering occupancy in prime retail space in Orchard Road and other areas in the Central Region. While they are predominantly F&B players, many new entrants in fashion and lifestyle have emerged recently, with some using the city-state as a springboard for regional expansion, says Wong Xian Yang, Cushman & Wakefield head of research for Singapore and Southeast Asia.

Chinese activewear brand Neiwai opened its first Southeast Asian store in Singapore's Raffles City in July. Finnish clothing brand Marimekko debuted in Ion Orchard in September and eyes Malaysia and Vietnam next. French patisserie Cedric Grolet opened its first Asian outlet in Como Orchard in September. With its business partner RichL Group, a Singapore-based investment company in luxury brands, Swiss brand Clinique La Prairie opened its first holistic health boutique in Singapore and Southeast Asia at Marina Bay Sands Hotel Tower 3 in July.

International doughnut chain Mister Donut opened its first store at Junction 8. Australia-based beverage brand Chaffic has launched at Westgate; Taiwan fried ice-cream Frozen Heart chain has opened its first overseas outlet at Jewel Changi; and the avocado dessert chain from the Philippines, Avocadoria, has set up its first international franchise at Ang Mo Kio Hub.

"Many new foreign brands, especially those in the F&B sector, have chosen to launch their first outlets outside the Central Region this year," says Wong.

Meanwhile, local lifestyle brands have leveraged social media platforms to create "viral bursts of sensational shopper interest and crowds", notes Leonard Tay, Knight Frank Singapore head of research. He points to The Paper Bunny and Beyond The Vines, which attracted online and offline attention with promotions of new products during marketing campaigns that generated viral responses from a digitally savvy demographic base.

Marginal increase in rental, occupancy rates

On the back of a recovery in the retail market, the URA retail rental index has been positive for two consecutive quarters, with marginal increases of 0.5% q-o-q in 3Q2023 and 0.3% q-o-q in 2Q2023, notes Tay.

Occupancy levels increased to 92.8% in 3Q2023 from 92.5% in the previous quarter, surpassing the pre-pandemic level of 92.5% recorded in 4Q2019, adds Tay.

In the Downtown Core, net demand rose by 118,403 sq ft in 3Q2023, with the completion of phase 1 of Guoco Midtown and The M at Beach Road. The vacancy rate in the Downtown Core dropped from 10.6% in 2Q2023 to 7.9% in 3Q2023. "It's the lowest since the 7.3% vacancy rate in 4Q2019," says Tricia Song, CBRE head of research for Singapore and Southeast Asia. "Improving return-to-office trends and space availability could have spurred more retailers to take up space in the Downtown Core locations," she adds.

URA data showed negative net absorption of about 86,000 sq ft in 3Q2023, compared to a higher take-up of 269,000 sq ft in 2Q2023. Song attributes the drop in vacancy rate to 8% in 3Q2023 from 8.3% in 2Q2023 to a decline in retail stock of 237,000 sq ft, owing to the redevelopment of retail malls such as JCube, Central Mall, Central Square and Faber House.

Fall in vacancy rates

Islandwide retail vacancy rates fell 0.3 percentage points q-o-q to 7.2% in 3Q2023. It was the second straight quarter of decline, led by a 0.4 percentage point q-o-q fall in the vacancy rate in the Central Region to 8.8%, says Angeline Phua, JLL consulting director of research and consultancy, Singapore. She attributes the drop in vacancy to "resilient occupier demand amid net space withdrawal".

The growing pre-commitment rates of upcoming retail developments, such as One Holland Village and Pasir Ris Mall, "are a testament to the healthy demand for retail space", according to Phua.

The vacancy rate in the Outside Central Region inched up 0.2 percentage points q-o-q to 4.2% in 3Q2023, notes JLL. However, it remains at the bottom end of the 4.2% to 8.5% range over the five years (2015 to 2019) before the Covid-19 pandemic.

The rise in rents and ongoing challenges such as manpower shortages and inflation have resulted in retailers consolidating their spaces in 3Q2023, notes CBRE's Song.

Demand for retail space remains "challenging" due to higher labour costs, intense competition for consumers and dampened economic sentiments. "Some struggling retailers are calling it quits, spurring a change in tenants," says Cushman & Wakefield's Wong.

However, he expects resilient consumption demand in Singapore to continue to attract new demand from retailers and backfill vacant space.

Retail landlords are expected to hold on to their rental expectations amid rising operating costs.

Growth in visitor arrivals, return of MICE

Retail rental recovery in the Central Region should pick up going forward, alongside the low availability of prime retail spaces, limited new supply and China's outbound tourism recovery, adds Wong. "China regained its spot as the top source market for visitor arrivals in 3Q2023, contributing about 581,000 visitors to Singapore." However, the number is still 44% below the pre-pandemic level in 3Q2019.

Singapore visitor arrivals climbed to 10.1 million in the first nine months of 2023, notes JLL Research. It is expected to be on track to meet the Singapore Tourism Board's projected range of 12 to 14 million arrivals for the entire year on the back of growing traveller confidence and increasing flight connectivity and capacity. "It should continue to spur strategic business expansion, lower vacancy rates amid a tight supply pipeline in the medium term, and support rent growth," says JLL's Phua.

"Singapore is also fast becoming a destination of choice for many concerts of international artistes alongside the return of major Mice (meetings, incentives, conferences and exhibitions) events," says Knight Frank's Tay.