Source : Business Times - 24 Oct 2008
It cites new retail space of 3.4m sq ft available in ‘09, and spending slowdown
RETAIL landlords are headed for a rough patch as consumer spending weakens amid the economic downturn and with 3.4 million sq ft of new retail space scheduled for completion next year, property consultants say.
Knight Frank’s head of retail Sherene Sng predicts that average rents for prime retail space in Orchard Road and at suburban malls could slip 5-15 per cent in 2009. ‘For super-prime retail space on Orchard Road, the decline, if any, will be capped at around 5-10 per cent at most, because there’s not that much super-prime space around and most of it is in malls that are very well managed,’ she said.
For full-year 2008, Ms Sng expects retail rents island-wide to be pretty much flat, increasing no more than 5 per cent.
CB Richard Ellis said yesterday retail rents stagnated in the third quarter of this year, and trimmed its full-year 2008 forecast for prime Orchard Road rents.
It now expects Orchard Road rents to edge up 2-3 per cent in 2008, lower than a 3-5 per cent increase it predicted earlier this year. However, CBRE is maintaining its 3-5 per cent increase forecast for prime suburban mall rents in 2008, due to the captive market of HDB heartland shoppers these malls can count on, as well as limited new supply of retail space in the suburbs.
Some 41 per cent of the 3.4 million sq ft of new retail space slated for completion next year will be in the Orchard Road belt - coming from developments like ION Orchard, Orchard Central, 313@Somerset and Mandarin Gallery.
‘This will bump up total private Orchard Road retail stock some 36 per cent in just 2009 alone and undoubtedly raise concerns about space absorption, despite the fact that retail take-up tended to be somewhat supply-led in the past,’ CBRE said.
The biggest contributor to new retail space on the island next year will be The Marina Bay Shoppes at Marina Bay Sands, with 800,000 sq ft of net lettable space, according to CB Richard Ellis. The Downtown Core region, where the development is located, will account for 24 per cent of new retail space being completed here next year.
Knight Frank’s Ms Sng says the big factor affecting retail rents next year will be not so much the completion of 3 million-plus sq ft of new space but a slowdown in sales as people tighten their belts and cut spending due to the economic downturn.
‘This will cause retailers to become more cautious and adopt a watch-and-wait attitude and hold back business plans,’ she said. ‘Some smaller retailers operating as sole proprietorships or partnerships may also be affected by the stockmarket crash. Of course, there will be some retailers that are still doing well - but they too will use the weaker economic climate to secure more attractive rents from landlords when they renew leases or open new stores.’
CBRE’s data shows that in Q3 2008, the average monthly prime retail rent in Orchard Road was $36.80 per sq ft, while the average super-prime rent there was $54.40 psf. The average prime retail rent in the suburbs was $29.30 psf. All three numbers were unchanged from Q2.
CBRE’s director (retail services) Letty Lee declined to forecast retail rents going ahead. ‘A number of factors will determine the rate of rental change for the rest of this year and the next,’ she said.
‘The full impact of the financial meltdown on the job market is still unknown. In the meantime, consumers will remain cautious and may cut spending as a result.
‘The financial turmoil will also affect tourism, which will in turn affect consumer spending. Landlords may be pressured to reduce rents as a result. We are still assessing the situation and it is difficult to make a projection at this stage.’
Colliers International said in a report yesterday that while year-end festivities may provide some relief for retailers, consumer spending is likely to remain subdued given the poor economic outlook and the drop in foreign visitors.
Any retail rental growth is therefore expected to be minimal in the last quarter of the year. ‘As such, rents are projected to increase by up to 5 per cent for the whole of 2008,’ Colliers said.
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