URA’s retail rental index for the Central Region has posted its first increase after 12 consecutive quarters of decline, says Desmond Sim, CBRE head of research for Singapore and Southeast Asia. The index rose 0.1% q-o-q. “While this growth is deemed to be minor, it is an indication that the retail market is showing signs of bottoming out and achieving stability,” he says. The Fringe area also recorded an increase of 0.3% q-o-q in 1Q2018.

Island wide, the vacancy rate for retail space edged up 0.1ppt q-o-q to 7.5%, notes Tricia Song, Colliers International head of research for Singapore. She attributes the “tight changes” to some market consolidation taking place in the retail sector, and expects the market to bottom sometime this year as landlords and retailers adapt to the new retail landscape.

“Retail sales shifted back into positive territory in 2017 after three consecutive years of sales decline, albeit from a low base,” adds Song. “This is underpinned by a recovering consumer climate and surge in Chinese visitor arrivals.”

Orchard Road malls benefit from rise in tourism

Rents in the Orchard Road area are likely to be better supported, as the malls in Singapore’s famed shopping belt will be “a primary beneficiary” of the surge in tourist arrivals over the short term, reckons Song. “The URA and [Singapore Tourism Board’s] joint efforts in rejuvenating the shopping belt with a Shibuya-style scrambled pedestrian crossing, as well as various directives under the ‘Orchard Road Blueprint’ initiative, are likely to lend further support to the recovery sentiment,” she says.

However, the improving sales climate may not translate into substantially improved profit margins in the short term, cautions Song, owing to stiffer competition with multiple stores peddling similar wares. This is likely to cap any upside in retailer margins. Hence, Orchard Road prime rents are unlikely to stage a dramatic rally despite the boost in overall retail sales and tourism arrival figures, she says.

“We expect the overall retail property market to stabilise over 2018 and 2019. Prime retail rents in the Orchard precinct should lead the recovery, rising 1% to 3% y-o-y in 2018.”

Suburban malls with strong catchment areas

In the regional centres, Song expects “select shopping malls”, particularly those in the suburbs with significant catchment areas, to continue to outperform its peers.

Christine Li, senior director of research at Cushman & Wakefield agrees. She sees retailers still keen on taking up space at suburban malls with strong catchment areas such as the mall at Paya Lebar Quarter and Century Square at Tampines near the MRT station. The mall at Paya Lebar Quarter reported 50% pre-commitment by tenants such as Shaw Theatres, Fairprice Finest supermarket and Kopitiam food court.

In Tampines Central, Century Square is undergoing a $60 million asset enhancement and is expected to reopen in 2H2018. It is more than 85% pre-committed, with spaces taken up by Hai Di Lao, Mahota Market, Totts, The Food Market, Gymmboxx, Filmgarde and Learning Lab, says Li.

Even so, the retail scene continues to see casualties, with the likes of Banana Republic, Gap and American Eagle Outfitters closing their stores, she observes.

New partnerships, co-working in malls

Landlords and retailers are adapting to stay at the forefront of the retail scene. CapitaLand Mall Trust has partnered with e-commerce player Lazada to introduce click-and-collect lounges in seven of CMT’s malls. It is part of its effort to “marry the offline and online shopping experience”, says Li.

Fashion and lifestyle retailer FJ Benjamin is setting up an advisory board to help integrate its physical stores and online sales channels to pursue an omni-channel strategy.

“Landlords are also becoming more receptive towards having co-working operators in the malls to curate experience as a community hub,” says Li. WeWork is leasing 40,000 sq ft in the upcoming Funan, part of which is situated in the retail portion. Spaces, a co-working concept by IWG, will occupy more than 35,000 sq ft at One Raffles Place shopping mall. Meanwhile, JustCo is taking up 60,000 sq ft at Marina Square shopping centre to host up to 1,000 workspaces.

“Potential synergies can be realised, as landlords can drive occupancy and footfall while co-working members can showcase their products and run pilot projects in the mall to gain potential clients via heightened brand awareness,” says Li. “Retailers can also enjoy first-hand access to the latest retail innovations.”

Retailers are also reinventing themselves. Beyond omni-channel marketing, retailers can also make use of mall space to create experiences for shoppers to increase brand awareness and appeal to people’s lifestyles with their product concepts, says Lee Nai Jia, head of research at Edmund Tie & Co.

This article appeared in the EdgeProp Pullout Issue #829 (May 7 2018)