Prices of retail space decreased by 1.9% q-o-q in 1Q2019, compared to the increase of 1.5% q-o-q in the previous quarter, according to the latest URA statistics. Rentals of retail space fell by 0.2% q-o-q, compared to the 1.2% q-o-q rise in 4Q2018.

Tay Huey Ying, head of research and consultancy, JLL Singapore, says that with both the rent and price indices of retail space in the Central Region returning to the “contractionary mode” following 4Q2018’s expansion, the statistics point to a retail property market that is “still trying to find its footing”.

She says that the marginal 0.2% q-o-q decline for rents in the Central Region in 1Q2019 is “likely due to a changing tenant profile such as the increasing take-up of prime retail space by rent-sensitive occupiers with large space requirement”.

In 4Q2108, SuperPark opened in Suntec City and Holey Moley opened in Clarke Quay. Tay notes that Nerf Action Xperience and Kiztopia will be opening in Marina Square in the coming quarters.

Stocks and vacancy

URA says the net amount of occupied retail space shrank by 14,000 sq m in 1Q2019. The previous quarter saw a net increase of 24,000 sq m. Overall vacancy rate of retail space rose to 8.7% at end-1Q2019, from 8.5% at end-4Q2018.

Desmond Sim, head of research, Southeast Asia, CBRE, notes that with new supply coming onto the market, vacancy rates have risen from 9.6% in 4Q2018 to 9.9% in 1Q2019. The Orchard Road area has seen a higher vacancy rate of 6.1%.

Tricia Song, head of research for Singapore at Colliers International, says recent retail mall Reits’ financial results saw some improvement in shopper traffic in their malls in 1Q2019, as well as positive rental reversions, “underscoring some success in their proactive asset and lease management”.

She expects retail space supply in the Central Region, city fringe and suburban areas in 2019 to rise by 2% of the current stock. “Upcoming supply in 2019 includes Raffles Hotel Arcade, Funan, and PLQ Mall,” says Song. She says supply “should taper off significantly from 2020”.

Sim expects overall vacancy rates to “compress”.  This takes into account the physical occupation of recent completions like Jewel Changi Airport and the asset enhancement of TripleOne Somerset. The supply pipeline is also expected to tighten over the next few years, he adds.

Outlook

This year, ground-floor retail rents in prime shopping centres along Orchard Road will rise marginally by 1-2% y-o-y, due to the lack of new stock, says Song, while prime floor rents for suburban regional centres should stabilise.

JLL’s Tay says the expansion plans of Marina Bay Sands and Resorts World Sentosa should inject confidence in the medium-term prospects of Singapore’s tourism and retail industries. This would in turn lend support to demand for retail space.

CBRE’s Sim sees the retail market remaining “a two-tier market with resilience in the prime spaces while secondary spaces and floors remain challenging”. He adds: “Landlords for such secondary spaces would have to strike a fine balance between occupancy and rental values.”

Tay says ongoing restructuring in the retail space will likely see the URA rental rental index “flip-flopping between marginal up- and down-ticks in the short term”.