Smaller drop in prime Orchard Road rents expected

Source : Straits Times – 14 Jul 2009

PRIME Orchard Road rents are tipped to fall about 10 per cent to 12 per cent this year, and not up to 20 per cent as forecast earlier, said CB Richard Ellis (CBRE).

The consultancy pointed to the healthy demand for existing shop space and the high pre-commitment levels seen at yet-to-be completed malls.

Mandarin Gallery, for instance, is 93 per cent pre-committed.

Prime Orchard Road rents fell 6 per cent in the first half of this year and now average $33.90 per sq ft (psf).

CBRE painted a gloomy picture of the retail market in March, saying it was looking at a 15 per cent to 20 per cent fall in Orchard Road prime rents this year.

It cited a weakening economy, a shift away from luxury goods and falling visitor arrivals. Many retailers were then crying out for rent cuts.

Major retailer RSH Group recently said that it is still renewing shop rents at higher levels even though its profits have fallen. At some locations, it may have to downsize its stores.

But CBRE has since become more upbeat. The retail landscape along Orchard Road is about to hot up with plush new malls – which are said to be signing leases at rents lower than last year’s – nearing completion.

Orchard Central has ’soft-opened’ while Ion Orchard, Mandarin Gallery and 313@Somerset look ready to open in the next six months.

And existing malls on Orchard Road are trying to keep up with the new arrivals.

The Heeren has announced revamp plans, while Ngee Ann City is sprucing up the former Sparks space into a chic lifestyle cluster catering to young adults, said CBRE.

Suburban malls are doing far better. Rents fell just 2.4 per cent in the first half.

Prime suburban rents remained unchanged at $28.30 psf a month on average in the second quarter. Support came from the limited upcoming suburban supply, said CBRE.

Suburban malls owned by real estate investment trusts are under pressure to be yield-accretive and are therefore less likely to drop rents drastically, said CBRE.

The consultancy has also moderated its forecasts for suburban mall rents, saying they are likely to contract by 5 per cent to 6 per cent this year, down from an earlier estimate of a 10 per cent to 15 per cent decline.