Retail rents are expected to increase further in 2024

Rents for Singapore retail landlords rose in 2023, from the pandemic lows they had experienced before. This was due to tourists returning and domestic spending recovering.

Market watchers said that while inflationary pressures and a higher Goods and Services Tax may have a temporary impact, it is unlikely they will dampen retail sales and drive rents down.

The prime retail rents will rise by between 1.5 to 4.1 percent for the entire year 2023. This is due to the strong performance of the Orchard Road sub-market and the Downtown sub-market.

Retail rents are rising due to both the demand for Tier-1 shopping malls such as Ion Orchard or Nex and higher inflation.

Tenant sales at Tier-1 malls have surpassed pre-Covid levels due to a recovery in tourism and revenge purchases. Rents are increasing, and property costs are also rising.

The retail sales increased for eight months in a row from February 2023 to September 2023, before dropping in October. According to Department of Statistics data, retail sales rebounded in the month of November with a value of S$4.1 billion.

In 2023, food and beverage will continue to be the leading driver of new mall openings. This sector will account for 48 percent of all new openings. Fashion, beauty, wellness and lifestyle were the next most popular openings.

Singapore’s foreign visitor arrivals in November declined for the 4th consecutive month, to 1.1m, but they were still higher than 816,340 visitors in November 2022. In November 2019, there were 1.5 millions tourist arrivals before the pandemic.

Analysts expect that the momentum of tourist spending will continue, and Orchard Road rentals to rise. However, downside risks still exist.

By 2024, tourism is expected to recover fully. High inflation and rising oil costs could increase the cost of transport and accommodation for tourists.

Travelers may tighten their pursestrings and be more cautious with their travel plans and spending due to the current macroeconomic climate.

The strength of the Singapore Dollar is driving Singaporeans to travel overseas, but the purchasing power for tourists will be limited.

Chuan Park showroom

The retail market has been hit by inflation and, to some extent, the GST increase.

Analysts believe that plans to revitalize Orchard Road and make it a lifestyle destination in the future will boost prices and rents.

Orchard Road properties are attracting more interest. Tanglin Shopping Centre sold for S$868 millions in 2022, while Far East Shopping Centre changed hands at S$908million. Scotts Square is also for sale at S$450 Million.

Redevelopment of old buildings along Orchard Road can bring new retail spaces that will attract tenants and command higher rents. These stretches could also be transformed into areas more prominent and vibrant with increased foot traffic.

The strata-malls often have a mishmash due to the owners operating their own retail and F&B concepts as well as those who rent out their units on the basis of rental rates, without enough consideration for concept types or trade synergies.

These malls will benefit from a redesign of their mall positioning and strategy in order to offer a more holistic shopping experience to customers and to appeal to the new generation.

Rents are expected to increase by 3 to 5 percent per year in Orchard Road.

Rents in the suburbs will likely remain flat as inflation and outbound travel dampen consumption in the heartlands.

According to URA data, an estimated 570,000 sq ft (sq ft), net lettable (NLA), of retail space is expected to be added by 2024.

This figure is lower than the 1.2m sq ft NLA that was completed in 2019. It is also higher than the 443473 sqft NLA retail space completed by 2022, and similar to 599,549 square feet NLA in 2021.

The likelihood of a retail oversupply in the year 2024 is low and will not have an impact on retail rents for this year.

Pasir Ris mall, which is estimated to be completed in 2024, will have approximately 280,000 sq. ft. of NLA , . Labrador Tower will also be getting a smaller retail component, estimated at around 30,000 sq ft NLA.

The retail supply that will be added by 2024 is still less than the average annual volume of 0.62 millions sq ft over the past five years, which should support rents in 2019.

She added that she expects the capital value to rise in 2024.

URA data shows that prices for retail space in Central Region have recovered by 0.9 percent since the Q1 low. In Q3, prices were 26 per cent lower than their peak levels from Q4 2014.

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