Retail rents continue to drop in Q2

Source : Business Times – 4 Jul 2009

RETAIL rents continued to fall in the second quarter of 2009 amid economic contraction and new supply, according to a report released yesterday by DTZ Research.

Prime first-storey rents in the Orchard/Scotts Road area fell 0.8 per cent to $39.60 per sq ft per month (psf pm). This was a slower pace of decline, after rents fell 4.8 per cent in Q1. Rents for second-storey space fell 4.5 per cent in Q2 – also less than a 6.4 per cent fall in Q1. Rents in suburban areas fell marginally in Q2, supported by resident catchments. Prime first-storey rents eased 0.6 per cent in Q2 – the same as the fall in Q1.

However, rents in ‘other city areas’ fell more in Q2 than Q1, partly due to new supply that will be completed in the second half of 2009. Prime first-storey rents declined 3.1 per cent to $25.40 psf pm in Q2, more than the previous quarter’s fall of 2.2 per cent. 1.3 million sq ft or 56 per cent of new retail space that will be completed in the rest of the year will be in ‘other city areas’, DTZ estimates.

Anna Lee, associate director of retail at DTZ, said that many retailers and F&B operators have delayed expansion plans or changed their business strategies because of the economic downturn. Some F&B operators have or are considering moving to business parks, where rents are much lower and there is a considerable worker catchment to tap on, she added.

Looking forward, the retail sector will remain under pressure this year because of the downturn in visitor arrivals and the economic contraction, said Chua Chor Hoon, head of DTZ South-east Asia research. ‘Orchard/Scotts Road and other city areas will be more affected due to substantial new supply,’ Ms Chua said.

Other analysts likewise expect retail rents to keep falling this year, with the prime Orchard/ Scotts Road area tipped to be worst hit.

Macquarie Research, for example, said in a June 15 report that it expects prime Orchard Road rents to fall 10-15 per cent this year given new supply coming on stream. For suburban retail rents, a smaller 5-10 per cent year-on-year fall is expected.

‘Historically, retail rent growth is closely aligned with retail sales growth,’ said the firm’s property analysts Tuck Yin Soong and Elaine Cheong.