Retail rents flattens as consumer spending slows

Source : Channel NewsAsia - 19 Nov 2008

The dip in consumer spending due to the economic downturn has caused concerns among many retailers who are paying top dollar for retail space.

Market watchers said they do not expect any rental growth in the 4th quarter, but some retailers may be holding out for concessions.

Orchard Road, Singapore’s prime shopping district, is set to welcome four new malls next year - ION Orchard, 313@Somerset, Orchard Central and The Mandarin Gallery.

Orchard Central is expected to open in the first quarter of next year, ION Orchard by mid-2009 and 313@Somerset by end of 2009.

The new revamped Mandarin Gallery at The Meritus Mandarin Hotel, currently undergoing a S$200 million facelift, is due to open in October 2009.

The four-storey Mandarin Gallery will have 130,000 square feet of retail space, with rental rates ranging from S$12 to S$60 per square foot. About half of the space has been leased.

The landlord said it will find ways to help tenants cope with the tougher business climate, but it said cutting rents may not be best thing to do.

“Rental rebates is not a solution… It would help (but) at the end of the day… it is a lot more effective if we come together, put our efforts, and even our finances together, to try to sustain the shopping, the spending and the traffic,” said Patrina Tan, senior VP of Retail, Marketing & Leasing, Overseas Union Enterprise (OUE).

OUE said it will try to woo shoppers to the mall with brands that are new to the Singapore market.

Many tenants along the shopping belt are locked in to their rental rates for up to three years, with the option to negotiate new deals thereafter. Analysts said high-end retailers tend to have the upper hand during such negotiations compared to mass market retailers.

“If the landlord feels that this tenant is important, if it’s a part of the mall’s image that he is trying to build up, he may be a bit more flexible in the rental negotiations. And it’s not just rentals, it could be other terms or incentives like rent-free periods,” said Nicholas Mak, director of Consultancy & Research at Knight Frank.

With festive shopping round the corner, analysts said landlords might prefer to wait a little.

Analysts also expect retail rents to drop by one per cent this quarter.

Tan Huey Ying, director of Research & Advisory at Colliers International said: “It depends on when the economy is going to recover. But if the two integrated resorts were to proceed and open as scheduled, then I think there is some likelihood that the market may see a revival in the second half of 2010 or the first half of 2011.”

While many of the projects along Orchard Road will open as planned, market watchers expect about 20 per cent of the upcoming retail projects, especially those in the suburban areas, to be deferred till 2010 due to construction delays.