What’s cool in retail mix

Source : Business Times - 26 Mar 2009

As shop space multiplies, mall owners could take their cue from trends in more advanced markets to stay in the game, writes SHERENE SNG

AFTER a lull of years, Singapore will see a spate of new shopping destinations opening for business from this year. First off the block will be Tampines 1 at Tampines Central and iluma at Victoria Street. This will be followed by the Orchard Road malls - Orchard Central, ION, 313@Somerset and Mandarin Gallery. Close on their heels will be the malls at integrated resorts Marina Bay Sands and Resorts World at Sentosa.

With tourist arrivals falling in the face of the global slowdown and increasing competition from the new kids on the block, existing mall owners and retailers are under immense pressure to remain relevant. To stand head and shoulders above the competition, they have to study consumer behaviour to know what makes shoppers tick. Increasingly, they have to design malls and offer products that cater to consumers’ changing lifestyles.

Level One at Far East Plaza, The Heeren and Cathay Cineleisure are examples of malls that successfully cater to the young and trendy. Retailers there enjoy brisk sales and mall owners are reaping good returns.

F&B: Emerging trends

An emerging trend is the reconfiguration of retail space for food and beverage (F&B) use. Whether they are found inside shopping centres or in independent properties, these F&B outlets are drawing crowds and contributing to the changing lifestyles of Singaporeans.

Take Dempsey Hill, for example. It is not uncommon for friends to head there after work or on weekends to ‘chill’. What attracts them are the abundant dining and wining options, new-to-Singapore F&B concepts, an atmosphere of laidback charm, a choice of dining indoors or al fresco, and quirky shops.

This trend isn’t exactly new. Boat Quay was an early success. However, Boat Quay also shows that owners and operators have to be nimble and sensitive to consumers’ changing needs or be overtaken by the competition. Clarke Quay, for instance, is now a more ‘happening’ place compared with Boat Quay.

This month, iluma, an urban entertainment mall in Victoria Street, opens for business. This development aims to be a unique attraction with a mix of entertainment, thematic dining as well as shopping spaces. Up to 60 per cent of the floor area will be dedicated to entertainment uses so Singaporeans can look forward to a new destination where they can shop, dine and play.

How should mall owners respond to the new malls and fresh trends?

Take the shift to F&B, for example. In older malls, F&B constitutes 10-15 per cent of lettable space. In more contemporary malls, the proportion is 20-30 per cent. Mall owners have to reconfigure their space to meet new demand. This could come from students looking for a place to hang out, young PMETs (professionals, managers, executives and technicians) gravitating to chill-out joints or families sitting down for a meal together.

Marina Square, Raffles City Shopping Centre and Level One @ Far East Plaza show the results when owners are willing to take a leap of faith, extensively repositioning their malls to create compelling concepts for target customers.

The concepts take into account interior design, ambience as well as the profile of existing retail tenants. The owners then invite suitable operators to implement the concepts. That these malls continue to be favourite shopping destinations are a testament to their success.

Going forward, the challenge is coping with the dramatic increase in retail space. As a comparison, from 1993 to the present, total retail space grew from 2.8 million square metres to 3.2 million sq metres. That’s an increase of about 400,000 sq metres, or 14 per cent. But in the next two years, 531,000 sq metres of new retail space will come on the market - much more than the total added in the last 15 years.

In Orchard Road, ION,313@Somerset, Orchard Central and Mandarin Gallery will contribute 180,000 sq metres. The rest will come from Marina Bay Sands and Resorts World, City Square at Kitchener Road and Serangoon Central.

The challenge ahead for mall owners is addressing the downward pressure on rents. For the whole of 2008, overall prime retail rentals saw a rise of 0.8 per cent year-on-year. The retail sector performed impressively in the first half of 2008, with prime retail rentals growing by 13.9 per cent compared with 1H 2007. But the trend reversed in mid-2008 when the global financial crisis struck, resulting in a decline in retail rentals in the second half.

Internet generation

Given the circumstances, retail rents held up well in 2008. Going forward, however, it is imperative for mall owners and retailers to find creative ways to capture consumer attention and stay in the game. They have to look beyond current needs and prepare for competition of the future.

They could take their cue from trends in more advanced economies, like Japan and the US, which will shape lifestyles changes in Singapore. One of these changes will be propelled by the Internet generation. The other, as mentioned, is the changing F&B scene. Operators who capitalise on opportunities presented to them as rents face downward pressure may find themselves well placed when the recovery comes.

The writer is head of retail, Knight Frank Pte Ltd

Going, going … to sales by auction

Source : Business Times - 26 Mar 2009

Owner sales are outstripping mortgagee sales at auctions. Given the transparent process, the lively interest in property auctions and the high probability of a quick sale, this is hardly surprising

IT used to be that property auctions were where distressed assets wound up since banks used them for mortgagee sales, as was the case in the last two recessions of 1985 and 1998.

But things have changed since, as a growing number of property owners themselves approach auction houses to sell their properties. In fact, owner sales now outnumber mortgagee sales at auctions. The proportion of owner sales has increased from 50 per cent in 1998 to 72 per cent in 2008. In comparison, the proportion of mortgagee sales has declined from 50 per cent in 1998 to just 28 per cent in 2008.

During the property boom years of 2006/2007, developers like Sentosa Cove and Tuan Sing Holdings successfully conducted auctions on an international level to sell high-end land parcels in Sentosa and several residential units in Botanika, respectively. Not only did these developers achieve record prices, they also attracted a high level of foreign participation and gained good exposure for their projects.

Singapore’s property market has matured over the years, mirroring markets such as Australia where auctions are the most popular method used by owners to sell their properties. Both sellers and buyers here have grown to accept the auction mode of sale as the open bidding system is transparent and efficient.

One can find a wide variety of properties at auctions today. Properties ranging from mass market apartments at Braddell View, Telok Kurau and Tiong Bahru to high-end bungalows on Sentosa, good class bungalows at Astrid Hill as well as prestigious apartments like St Regis Residences have been put up for auction by their owners.

Properties under construction, such as those in The Clift, Sky@eleven and The Oceanfront, have also featured at auctions.

Besides residential properties, owners and companies have also used auctions to sell shop units in prime locations such as Peninsula Plaza as well as shophouses in popular suburban towns like Ang Mo Kio, Clementi, Tampines and Toa Payoh.

With deteriorating economic conditions and an expected increase in job losses, the number of repossessed properties is likely to rise in the next six months. Attendance and interest at auctions will continue to be buoyant as buyers look to auctions to find their ideal property. Strong interest is expected in the mass market segment as well as for properties priced around $1 million as upgraders seek out opportunistic buys.

Despite the lull in the property market amid the global financial crisis, the market is seeing strong buying interest at auctions. However, the sales volume is low due to a mismatch between the expectations of sellers and buyers. A turnaround is likely to take place only when buyers start to perceive that the market has bottomed out.

Auction houses like Colliers International, DTZ, Jones Lang LaSalle and Knight Frank typically hold one auction a month, usually in the function room of a hotel. It is usual for these auction halls to be jam-packed with potential buyers and attendees, who often spill out to the corridor, with hardly any standing room.

Serious buyers are flocking to auctions in search of their dream home or to clinch an opportunistic buy from a distressed sale. From just one or two requests received per day from the public to be put on the mailing list last year, auction houses are now receiving an average of five requests a day.

The strong underlying demand presents opportunities to sellers and buyers alike.

A public auction ensures that the process is transparent as there is open competition which ensures that the best price is obtained for the property. In a soft market, determining the selling price of a property can be difficult. Hence, companies that want to dispose of their excess properties or re-organise their portfolio can do it through an auction as it satisfies the objective of shareholder accountability.

If you are an owner looking to sell your property in this lacklustre market, an auction could also be the answer. Auctions generally capture a wider target market given the auction houses’ prominent advertisements and extensive database and mailing lists. The publicity and interest generated consequently increase the probability of a sale.

Moreover, auctions are a quick mode of sale as the sale date is fixed. This is good for owners who need to sell their property quickly to get their finances in order.

Those who choose to sell their property via auction can expect a higher success rate as the potential buyer would have done his homework and ascertained his financing prior to the auction date, whereas in a private sale, sellers can find themselves in a situation where a buyer has to terminate the purchase because he cannot get the required financing. That’s because most buyers approach the banks after they have identified the property they want.

There’s another factor that contributes to the higher success rate - buyers who purchase a property at auction are required to pay a 10 per cent deposit instead of just one per cent in the case of a private sale. And they sign the sale and purchase agreement as soon as the property is knocked down to them. These are deterrents to any buyer thinking of walking away from a sale by forfeiting the option.

Even if a property fails to sell on the scheduled auction day, the property owner can take the last bid price as the basis for negotiation. This is definitely a plus point compared to a private treaty sale as the seller may not get any offers since many buyers are hesitant to make a commitment.

Tips for owners wanting to sell in a weak market

~ Be realistic in fixing your asking price. It should be as close to valuation as possible so that potential buyers will be encouraged to make an appointment for a viewing and consequently make a firm offer for it. On the other hand, if they think the asking price is high relative to comparable properties, they will not be interested to view your property.

Case in point: Seller A wants to sell his apartment in Bukit Timah and has set his asking price at valuation. He receives an offer, which is 8 per cent below the valuation price. After some negotiation, the seller manages to seal the deal at 5 per cent below the valuation price and he is now awaiting the completion of the sale. In this case, a buyer was found within a month of marketing the property.

On the other hand, Seller B has tagged an asking price that is 20 per cent above valuation for his apartment near Orchard Road. Despite marketing the property for three months, he was not able to attract buyers to view his property and there was no offer to purchase.

~ Ask the auctioneer for advice on the valuation price, comparable asking prices, recent transactions and feedback on the viewing appointments before fixing your reserve price, that is, the minimum price below which you will not sell. This will increase the chances of success.

~ Give the auction house at least three weeks’ lead time so that there is enough time to organise the mailing list, advertisements and viewings before the scheduled auction date. The longer the lead time, the higher the chances of success.

~ Determine whether you are selling your property with vacant possession or tenancy and decide on the completion period. Your lawyer will need your instructions to prepare the terms and conditions of the sale. A typical completion period is three months. If you require more time than that, you can discuss fixing a longer completion period with your lawyers.

Tips for buyers in a weak market

~ Set a realistic budget.
~ Understand that the prices of repossessed properties are still guided by valuation.

Case in point: An enthusiastic foreigner quipped that in his country, the banks will sell a repossessed property for anything. Failing to understand that the price of repossessed property in Singapore is guided by valuation, he rattled off his wish list for a bungalow in Bukit Timah Road as well as an apartment on Orchard Road and asked to be notified of such good buys.

~ Give realistic counter-offers. Generally, auctioneers are not able to accept a counter-offer that is way below the opening price, for example, one that is 50 per cent below it. A reasonable gauge would be about 5 per cent below the opening price.

The writer is deputy managing director and auctioneer, Colliers International